NAIROBI, November 5, 2026 — Kenya could increase the size of its economy by more than a fifth over the next decade through stronger anti-corruption reforms, according to the World Bank, which warned that entrenched governance weaknesses were undermining investment, public finances and employment creation in one of East Africa’s largest economies.
In its November 2026 Kenya Economic Update, the World Bank said corruption had become a major structural constraint on economic transformation, increasing business costs, weakening government revenue collection and limiting the creation of productive jobs.
The report estimated that moderate improvements in corruption control could raise gross domestic product by 8.7 per cent by 2035 compared with a scenario without reforms. More ambitious measures could deliver a 22.3 per cent increase, while improvements in governance could generate better employment opportunities for up to 7.7mn people.
The findings underline the economic costs of weak institutions in Kenya, where growth has remained relatively resilient despite persistent fiscal deficits, rising debt-servicing obligations and mounting pressure on household incomes.
Kenya’s economy expanded by 5.2 per cent in the first half of 2026, compared with 4.9 per cent during the corresponding period last year, supported by stronger industrial activity and services.
However, the World Bank warned that headline economic expansion had failed to translate into sufficiently productive employment, with 83.8 per cent of workers remaining in the informal economy.
Corruption weighs on investment and business confidence
The World Bank identified corruption as a central obstacle to Kenya’s ambitions to accelerate industrialisation, attract foreign investment and improve living standards.
According to the report, 39 per cent of Kenyan businesses considered corruption a major or severe constraint in 2025, compared with 25 per cent in 2013.
More than a third of firms reported experiencing at least one bribery request during the preceding year, while medium-sized enterprises faced particularly significant pressures.
Among medium-sized businesses, 48 per cent reported being expected to provide gifts to public officials to facilitate administrative processes, compared with 36 per cent of small firms and 31 per cent of larger companies.
The report found that businesses exposed to bribery were more than 30 per cent less likely to introduce innovations and experienced lower productivity and sales growth.
These findings suggest that corruption is not simply a public-sector accountability problem but a direct constraint on private-sector competitiveness and Kenya’s capacity to develop higher-value industries.
Governance weaknesses also affect essential infrastructure, particularly electricity generation and logistics.
Electricity costs for Kenyan businesses are more than twice those in Vietnam and nearly 50 per cent higher than in neighbouring Uganda, according to the World Bank.
The report linked some of these costs to weaknesses in power purchase agreements, including insufficient competitive procurement, conflicts of interest and limited transparency in contract management.
Kenya’s logistics sector faces similar challenges.
The Port of Mombasa, a strategic gateway for trade across East Africa, ranked 375th among 403 ports in the World Bank’s Container Port Performance Index.
Multiple inspections, administrative charges and corruption risks along domestic transport corridors further increase the cost of moving agricultural products, construction materials and manufactured goods.
Fiscal deficit widens as public debt remains elevated
Kenya’s fiscal position has continued to deteriorate despite government efforts to strengthen revenue collection and manage debt obligations.
The budget deficit widened to 6.8 per cent of GDP in the 2025/26 financial year, exceeding the government’s original target of 4.7 per cent and the previous year’s deficit of 6 per cent.
Government expenditure reached 24.1 per cent of GDP, against an initial budget allocation of 22.2 per cent, reflecting higher operating costs, development expenditure and interest payments.
Public debt stood at 69.9 per cent of GDP at the end of June 2026, with domestic obligations accounting for 56.2 per cent of the total.
The growing reliance on domestic borrowing has increased commercial banks’ exposure to government securities, raising concerns that public-sector financing requirements could restrict credit available to private businesses.
Interest payments alone accounted for 5.8 per cent of GDP, consuming resources that could otherwise support infrastructure, education, healthcare and other development priorities.
The World Bank estimated that governance weaknesses contribute to widening annual fiscal deficits by approximately two percentage points of GDP through reduced revenue collection, inefficient spending and higher borrowing costs.
It called for stronger budget discipline, more transparent procurement and tighter oversight of public expenditure.
Inflation and external pressures threaten households
Kenya’s economic challenges have been compounded by rising energy and food prices, alongside disruptions to international trade.
Annual inflation increased to 7.3 per cent in October 2026 from 4.6 per cent a year earlier.
Energy-related inflation reached 10.4 per cent, while food inflation rose to 10.2 per cent, placing additional pressure on household purchasing power.
The Central Bank of Kenya maintained its benchmark interest rate at 8.75 per cent after February 2026, seeking to contain inflation while supporting financial stability.
Meanwhile, Kenya’s current account deficit increased by 59.4 per cent in the 12 months to August 2026, as imports grew faster than exports and diaspora remittances weakened.
The World Bank projected the current account deficit would widen from 2.8 per cent of GDP in 2025 to 4.3 per cent in 2026.
Nevertheless, the country’s external buffers remained relatively strong, with foreign exchange reserves reaching $14.7bn in October, equivalent to 5.9 months of import cover.
Foreign direct investment inflows also rose sharply, increasing by 170.5 per cent to a record $2.74bn in the 12 months to September 2026.
The contrasting trends highlight Kenya’s ability to attract international capital even as fiscal and governance challenges continue to undermine its broader economic potential.
Informal workers bear a disproportionate burden
The World Bank warned that corruption disproportionately affects informal workers, who account for more than four-fifths of Kenya’s employment.
Small traders, market vendors, transport operators and other informal businesses frequently encounter demands for unofficial payments from frontline public officials.
Such payments can consume as much as 20 per cent of daily earnings, reducing already limited household incomes and increasing uncertainty for workers operating outside formal employment structures.
The report also warned that higher fuel prices and associated increases in living costs could push an additional 1mn to 2.4mn Kenyans below the international poverty line in 2026.
These pressures threaten to weaken the connection between economic growth and poverty reduction, particularly in urban areas where households are more exposed to transport and food price increases.
Governance reforms could reshape Kenya’s economic outlook
The World Bank argued that Kenya already possesses much of the legal and institutional framework required to address corruption but needs stronger political commitment and more consistent implementation.
The enactment of the Conflict of Interest Act in 2025 was identified as a positive development, although significant weaknesses remain in procurement, tax administration, public investment management and the oversight of state-owned enterprises.
The report recommended expanding electronic government procurement, strengthening transparency around beneficial ownership, improving accountability for audit findings and introducing more competitive arrangements in the electricity sector.
It also called for greater transparency in tax exemptions and public-private partnerships, alongside reforms to simplify administrative procedures affecting businesses.
According to the World Bank’s modelling, moderate anti-corruption reforms could reduce Kenya’s public debt-to-GDP ratio by as much as 18 per cent relative to the unchanged-policy scenario, while stronger governance could increase household consumption by up to 27 per cent.
The report pointed to reform experiences in Tanzania, Côte d’Ivoire and India as evidence that meaningful improvements in corruption control are achievable.
It also highlighted the role of governance and public administration reforms in the economic transformation of Singapore, South Korea, Malaysia and Vietnam.
For Kenya, the implications extend beyond reducing financial losses associated with corruption.
Stronger institutions could improve the allocation of capital, lower infrastructure costs, attract productive investment and create the conditions for sustained employment growth.
The World Bank’s assessment suggests that Kenya’s longer-term economic ambitions will depend not only on maintaining macroeconomic stability but also on whether political leaders can dismantle governance practices that continue to favour connected interests over productivity and competition.
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