Kenya is projected to become East Africa’s largest economy by 2025, surpassing Ethiopia. Kenya's economic stability, supported by a strong currency, remittances, and export growth, contrasts with Ethiopia's struggles following a devaluation of its currency. Despite domestic challenges, Kenya is better positioned for future growth, signaling a shift in the region’s economic hierarchy.

Kenya is set to become East Africa’s largest economy by 2025, surpassing Ethiopia, according to recent projections from the International Monetary Fund (IMF).

The IMF forecasts that Kenya’s gross domestic product (GDP) will reach $132 billion, outpacing Ethiopia’s projected $117 billion. This shift marks a notable change in the regional economic ranking, influenced by differing economic policies and conditions in both nations.

Ethiopia's recent decision to devalue its currency, the birr, by over 55% in 2024 has helped the country secure $3.4 billion in IMF assistance and $16.6 billion in World Bank funding to support its debt restructuring and economic stabilization efforts. However, this move has led to a significant increase in inflation and import costs, placing further strain on a country already dealing with internal conflicts and climate-related challenges.

On the other hand, Kenya has shown relative economic resilience. The Kenyan shilling rose by 21% in 2024, making it the best-performing currency in the world, according to market analysts. This surge was fueled by a successful $1.5 billion Eurobond issuance, a record-high $4.94 billion in remittances from the Kenyan diaspora, and solid growth in agricultural and manufacturing exports.

Despite these strong economic indicators, Kenya has faced some domestic challenges. The government’s Finance Bill 2024, which introduced major tax reforms, sparked widespread public protests and led to significant losses among investors. In response to the protests, the government pulled out of a $3.6 billion, four-year IMF program, raising concerns about policy stability.

Nonetheless, Kenya's economy remains stable, supported by its diversified structure and improved investor confidence. The country has managed to handle the global economic downturn better than many of its regional neighbors, despite the IMF's prediction of a dip in global growth from 3.3% in 2023 to 2.8% in 2024.

Ethiopia, once viewed as East Africa's economic powerhouse due to its large population and ambitious infrastructure projects, is now facing vulnerabilities in its development model. Meanwhile, Kenya’s open-market strategy, diversified revenue streams, and stable currency have enhanced its position in the region.

While both countries continue to face economic challenges amid global trade tensions and inflationary pressures, Kenya appears to be better positioned for the near future. If current trends continue, Kenya is on track to officially become East Africa’s largest economy in 2025, marking a significant turning point in the region’s economic landscape.