Kenya overtakes Ethiopia as East Africa’s largest economy, IMF estimates show

Kenya overtakes Ethiopia as East Africa’s largest economy, IMF estimates show - A teller dispenses Kenyan shilling banknotes. (Photo: Reuters)

The IMF estimates indicate that Kenya’s nominal GDP in US dollar terms increased by about 13.7 per cent in 2025, while Ethiopia’s dollar-denominated GDP fell sharply from its 2024 level.

Kenya has overtaken Ethiopia as Eastern Africa’s largest economy measured by nominal gross domestic product (GDP) in US dollar terms, according to the International Monetary Fund’s (IMF) October 2026 World Economic Outlook (WEO), a shift largely attributed to exchange-rate movements rather than faster real economic growth.

The IMF’s estimates show Ethiopia’s economy continuing to expand more rapidly in real terms, even as the depreciation of the birr reduced the dollar value of its output. Kenya’s comparatively stronger currency performance, alongside continued economic growth, helped increase the value of its economy when measured in US dollars.

According to the IMF’s October 2026 WEO estimates, Ethiopia’s real GDP grew by 9.2 per cent in 2025, compared with 4.6 per cent in Kenya. The Fund projects Ethiopia’s economy to expand by 9.2 per cent in 2026 and 7.8 per cent in 2027, while Kenya’s growth is projected at 4.5 per cent and 4.7 per cent, respectively.

The figures underscore the distinction between nominal GDP, which values economic output at prevailing market exchange rates, and real GDP growth, which measures changes in output after accounting for price changes. A country’s dollar-denominated GDP can decline sharply following currency depreciation even when its domestic production is increasing.

Ethiopia’s currency shift followed the government’s July 2024 move toward a more market-determined exchange-rate system, a key component of its economic reform programme supported by an approximately $3.4 billion (Sh441.5 billion) IMF Extended Credit Facility. The subsequent depreciation of the birr substantially reduced the dollar value of the country’s economic output.

Kenya’s economy, meanwhile, benefited from a stronger shilling, which increased the dollar valuation of its output. The IMF estimates indicate that Kenya’s nominal GDP in US dollar terms increased by about 13.7 per cent in 2025, while Ethiopia’s dollar-denominated GDP fell sharply from its 2024 level.

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The change in ranking reflects the combined effects of economic growth, inflation and exchange-rate movements on the dollar value of each economy.

The IMF estimates nominal GDP per capita at about $1,130 (Sh146,730) in Ethiopia and $2,790 (Sh362,281) in Kenya in 2026, illustrating the difference between the total size of an economy and output per person.

Inflation also remains a concern. The IMF projects average consumer price inflation of approximately 11.7 per cent in Ethiopia in 2026, compared with about 6 per cent in Kenya. Persistent price pressures, alongside exchange-rate changes, affect households’ purchasing power and the cost of imports.

Titled Resilience Under Strain, Urgent Choices, the IMF’s October 2026 WEO projects Sub-Saharan Africa’s economic growth at 4.5 per cent in both 2026 and 2027. It also warns that high debt-servicing costs, limited foreign-exchange reserves and declining aid are constraining governments’ ability to respond to economic shocks.