The World Bank has warned that Kenya’s heavy reliance on borrowing to finance economic growth is no longer creating enough quality jobs and is instead placing increasing pressure on the country’s private sector, which it says should be the main driver of employment and long-term prosperity.
In its latest Kenya Country Growth and Jobs Report, the lender says the country’s growth model has reached a turning point. While Kenya’s economy has expanded steadily over the last two decades, that growth has not translated into enough formal employment for the rapidly growing workforce.
According to the report, Kenya recorded average annual economic growth of about 4.5 per cent between 2001 and 2025. Much of that expansion was supported by government spending, large infrastructure projects and a growing services sector. However, the World Bank argues that this approach has become increasingly unsustainable because it has relied heavily on public borrowing while failing to stimulate enough private investment.
Public debt has continued to rise over the years, reaching 71.3 per cent of Gross Domestic Product (GDP) by the end of 2025. As debt levels increased, the government also spent more money on servicing loans, leaving less room for investments in other sectors of the economy.
The report explains that the current model is limiting economic opportunities because government borrowing has increasingly competed with private businesses for available credit. This has made borrowing more expensive for companies, discouraged investment and slowed the expansion of businesses that would otherwise create new jobs.
The World Bank notes that economic growth cannot remain inclusive if these structural challenges are not addressed. It says, “Economic growth that also brings increasing private investment and quality jobs is unable to be sustained and be inclusive if constraints are not addressed.”
Unemployment crisis
The warning comes as Kenya continues to face mounting pressure to create employment for its youthful population. Every year, around 800,000 young Kenyans enter the labour market, yet fewer than 100,000 secure formal jobs. The majority are forced into informal businesses or traditional farming, where incomes are often low, and job security is limited.
This imbalance has created a growing disconnect between economic growth and improvements in living standards. Although the economy has continued to expand, many young people are still unable to access stable, well-paying jobs.
The report points out that sectors capable of employing large numbers of workers, including manufacturing and agribusiness, have not grown fast enough. Instead, economic activity has been concentrated in construction, public administration and services, industries that employ relatively fewer people or require specialised skills.
Highly skilled workers continue to find opportunities in government and professional services, but these sectors cannot absorb the hundreds of thousands of new job seekers entering the market every year.
The World Bank also raises concerns about Kenya’s weakening competitiveness in international markets. It says exports have not grown quickly enough, foreign direct investment remains below potential and the country is still poorly integrated into global value chains. These factors have reduced opportunities for industries that normally drive industrialisation and mass employment.
The report further identifies four major challenges slowing Kenya’s economic transformation. These include rising public debt and fiscal pressure, external economic shocks, low productivity across several sectors and increasing climate-related risks that continue to affect agriculture and livelihoods.
Although Kenya made significant progress in reducing poverty before the Covid-19 pandemic, the World Bank says those gains were fragile because many households depended on vulnerable sources of income. Poverty levels rose during the pandemic and remain above where they stood before the health crisis despite the country’s economic recovery.
Rather than depending on government borrowing to sustain growth, the lender is urging Kenya to strengthen the private sector by creating an environment that encourages investment and business expansion.
Among its recommendations are reducing debt through sustained fiscal discipline, improving tax collection without placing unnecessary burdens on businesses, strengthening governance, fighting corruption and ensuring public resources are used more efficiently.
The report also calls for fewer regulatory barriers, better infrastructure, increased competition, stronger implementation of regional and international trade agreements and policies that attract more foreign investors.
It further recommends investing in manufacturing, modern agriculture and skills development so that more young people can access productive employment. The World Bank also believes Kenya can create new jobs by expanding climate-smart investments and green industries as the country adapts to climate change.
Ultimately, the lender says Kenya’s future economic success will depend less on public borrowing and government spending and more on building a competitive private sector that can generate quality jobs, increase exports and deliver lasting economic growth for its rapidly expanding workforce.
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