Corruption and collusion are holding back Kenya's economy, the World Bank said in its latest Kenya Economic Update. The global lender launched the report in Nairobi on Wednesday, The Star reported. It argues that governance reforms offer a relatively low-cost way to speed up growth. "Addressing governance constraints represents a significant and low-cost opportunity for accelerating growth as needed to achieve upper-middle income status," the report says.
According to the bank, graft widens the fiscal deficit by about two percentage points of GDP every year. That creates extra borrowing needs that pile up over time. Corruption risks also add a "governance premium" to sovereign debt, the bank said, because investors demand higher returns to cover the risk. Higher borrowing costs then raise interest payments and squeeze development spending. The bank's country overview puts public debt at about 70.6% of GDP. Interest payments absorb roughly a third of government revenue.
The bank says the gains from reform could be large. Moderate anti-corruption reforms could make GDP 8.7% higher by 2035 than if current weaknesses persist. Under stronger reforms, GDP could be 22.3% higher, and the debt-to-GDP ratio could fall by up to 18% against the baseline. Better corruption controls could also create more and better jobs for up to 7.7 million people. They could raise household consumption by as much as 27%. The bank stressed that these are long-term gains, not annual growth rates. They also depend on reforms being carried out and sustained.
Businesses feel the burden. The share of firms naming corruption as a major or severe constraint rose to 39% in 2025, up from 25% in 2013. The report found that 36% of businesses faced at least one bribe request in the previous year. Medium-sized firms were the most exposed. In August 2024, Prime Cabinet Secretary Musalia Mudavadi cited an estimate that graft costs Kenya KSh 608 billion a year. That was equal to 7.8% of GDP at the time.
National Treasury Principal Secretary Chris Kiptoo defended the government's record at the launch. He pointed to digital tax administration by the Kenya Revenue Authority and the e-Citizen platform. He also cited electronic procurement and the Integrated Financial Management Information System (IFMIS). Electronic procurement can make tenders more transparent, he said. He also highlighted more predictable payments to contractors and the Conflict of Interest Act. Kiptoo said growth averaged about 5% a year between 2022 and 2025. Revenue rose from KSh 2.2 trillion in 2021/22 to KSh 3.2 trillion in 2025/26, he added.
The bank raised its 2026 growth forecast to 4.6% from 4.3%, after a stronger-than-expected first half of the year. It warned that fiscal slippage could worsen debt pressures. The August 2027 general election could also raise uncertainty and delay private investment, the bank said. It could hurt tourism and add spending pressures.