IMF Lowers Kenya Growth Outlook by 4.5% Amid Rising Fuel Costs & Economic Uncertainty

The International Monetary Fund (IMF) has downgraded growth forecasts for Sub-Saharan Africa, including Kenya, days after a fuel price increase signaled rising economic pressure.

According to the IMF Regional Economic Outlook for Sub-Saharan Africa, regional growth, which hit an impressive 4.5 per cent in 2025, the fastest pace in a decade, is now projected to slow to 4.3 per cent in 2026, a figure the IMF attributes directly to the escalating conflict in the Middle East and its ripple effects.

“Economic activity accelerated broadly across country groups, with regional growth estimated at about 4.5 per cent, the fastest in a decade, reflecting favourable external factors and good policies, particularly in several large economies,” acknowledged the IMF.

The IMF added, “Regional growth is expected to reach 4.3 per cent in 2026, 0.3 percentage points lower than our prewar forecast, with significant heterogeneity across countries.”

As an oil-importing country, Kenya sits squarely in the group of nations the IMF warns will bear the heaviest burden, facing a deteriorating trade balance and a higher cost of living going into the rest of the year.

The global lender has been direct about the countries that will suffer most, and Kenya is not an exception, noting that “oil-importing, non-resource-rich countries face a deterioration in trade balance and higher cost of living”.

Inflation, which had mercifully cooled to 3.4 per cent by the end of 2025, is now expected to climb back up to 5.0 per cent by December 2026, impacting further household budgets that have never fully recovered from the 2020 Covi-19  pandemic’s damage to incomes and savings.

The war in the Middle East is yet another key frontier in the national suffrage. Oil, gas, and fertiliser prices have surged sharply, shipping costs have climbed, and trade routes with Gulf partners, who are significant trading partners for East Africa, have been thrown into disarray, disrupting supply chains.

On the other hand, tourism, which is an instrumental facet for the country’s foreign exchange earner for Kenya, is also caught in the crossfire, with the IMF warning that tourist arrivals are being dented by the conflict. This, in turn, adds pressure to an economy that was counting on the sector to sustain its post-pandemic recovery momentum.

IMF points out that for Kenya, remittances, which millions of Kenyan families depend on to pay school fees, medical bills, and household expenses, are also at risk. The IMF flags that money sent home from Gulf-based workers is likely to decline as the regional economic environment deteriorates and job markets tighten.

“The shock has disrupted the trade with Gulf partners, reduced tourist arrivals, and is likely to dent remittances to some countries,” reiterated the IMF.

With this in mind, the IMF notes that the “risk appetite has decreased”, negatively affecting financing conditions, while buffers in many countries are limited.

 In terms of food security, the IMF estimates that a 20 per cent rise in international food prices could push more than 20 million people across Sub-Saharan Africa into moderate or severe food insecurity.

In that downside scenario, regional output could contract by 0.6 per cent, with inflation rising a further 2.4 percentage points above pre-war projections, a combination that would represent a serious economic shock for governments still managing post-pandemic debt loads, as per the lender.

The IMF is now urging governments to act fast and protect the most vulnerable, recommending “targeted, time-bound support” to cushion households from rising living costs, while also calling on oil-importing nations to protect social and development spending and avoid slashing services under fiscal pressure.