The World Bank has upgraded its economic growth forecast for Kenya, signaling a pivotal shift in momentum for East Africa’s largest economy as it begins to emerge from a period of fiscal tightness that had stalled critical infrastructure development.

In a report released Monday, the development lender raised its 2025 growth projection to 4.9%, a notable increase from the 4.5% forecast issued in May, citing a robust resurgence in the construction sector that is effectively offsetting a slowdown in manufacturing output.

The revised outlook suggests that the worst of the recent downturn, characterized by stalled projects and mounting concerns over government solvency, may be passing. The World Bank noted that signs of recovery are clearly emerging, with the economy expected to maintain this accelerated 4.9% pace over the next two years.

This rebound follows a difficult year where key industries, particularly construction, contracted sharply as the state struggled to manage its finances, leading to a widespread downing of tools by unpaid contractors.

The “Securitization” Strategy and IMF Friction

To engineer this turnaround, the Kenyan government has resorted to financial creativity to inject liquidity back into the infrastructure sector. Officials have turned to securitizing loans against the country’s road maintenance levy—a tax charged on petrol prices—to raise the immediate funds necessary to pay road contractors who had abandoned sites due to accumulating arrears.

However, the heavy burden of public debt remains a central theme of the economic narrative. Public debt stood at 67.8% of GDP as of June 2025 (approximately KSh 11.81 trillion), with high annual repayment obligations continuing to absorb a vast portion of state revenue.

This complex debt landscape is currently the subject of high-stakes negotiations with the International Monetary Fund (IMF). While Kenya is in talks to secure a new financial support program following the expiration of its previous $3.6 billion facility, friction points remain regarding the transparency of the state’s balance sheet. Specifically, there are ongoing disagreements over whether the securitized borrowing used to revive the road sector should be officially classified as government debt—a classification the IMF favors but Nairobi opposes to keep debt ratios looking sustainable.

Broad-Based Recovery Tied to Agriculture, Tourism, and Forex

Beyond construction, the recovery is being underpinned by three other critical pillars:

• Agricultural Resurgence: The sector recorded 6% growth in the first quarter of 2025, driven by favorable rains that have boosted maize and tea production. This abundance has helped cool inflation to 4.6%, providing relief to households after the cost-of-living crisis that triggered the 2024 protests.
• Tourism Boom: The sector is projecting earnings of $4.33 billion for the year, with visitor numbers targeting the 3 million mark. The return of international travelers is providing a vital buffer for the country’s current account.
• Diaspora Remittances: Perhaps the most resilient lifeline, inflows from Kenyans abroad are on track to exceed $5 billion for 2025. These flows have been instrumental in stabilizing the Kenyan Shilling, which has firmed to approximately 129 against the U.S. dollar, aiding the central bank in building foreign exchange reserves to a record high of over $12 billion.

Despite the optimistic growth revision, the World Bank’s report outlines significant downside risks that could dampen the trajectory. The economy faces headwinds from international trade uncertainty, most notably regarding the impending expiry of the African Growth and Opportunity Act (AGOA) with the U.S. in September 2025, which provides duty-free access for Kenyan apparel.

Domestically, ongoing fiscal consolidation efforts aimed at stabilizing the budget deficit—targeted at 4.9% for the 2026/27 fiscal year—could further curb government spending, potentially acting as a drag on aggregate demand.

Beyond the immediate fiscal maneuvers, the World Bank utilized the report to press for deeper structural reforms to unlock long-term competitiveness. The lender identified the state’s heavy footprint in the commercial sector as a major barrier to efficiency, pointing to the presence of more than 200 state-owned firms that enjoy undue advantages and distort market competition.

To sustain the recovery, the report urged Nairobi to make its regulatory framework less restrictive to competition and to lower barriers to foreign investment, arguing that there is significant room to liberalize the market and reduce the dominance of parastatals.

Artificial intelligence will hand enormous geopolitical leverage — comparable to nuclear capabilities — to the countries that manage to get ahead now, according to Alexander Vedyakhin, the first deputy CEO of Sberbank.

He said dominance in AI will grant nations strategic superiority throughout the century, drawing a direct line between technological leadership and national power.

Speaking with Reuters at Russia’s annual AI Journey conference, Vedyakhin argued that it was no small feat that Russia sits among what he described as the “seven countries with home-grown AI.” Sberbank, which has rapidly expanded from a major state-backed lender into an AI-driven technology conglomerate, has become one of the key players in this push.

“AI is like a nuclear project. A new ‘nuclear club’ is emerging globally, where either you have your own national large language model (LLM) or you don’t,” he said. Moscow believes it belongs inside that club, but officials openly admit the challenges ahead.

Vedyakhin said Russia must have at least two or three entirely original AI models — not foreign models retrained with domestic data — to power platforms in online public services, healthcare, and education. He warned that using foreign systems in such sensitive areas would be unacceptable.

“It is impossible to upload confidential information into a foreign model. It is simply prohibited. Doing so would lead to very unpleasant consequences,” he said.

The Kremlin has been sharpening that message. President Vladimir Putin said last week that home-grown AI was essential for protecting Russian sovereignty, reinforcing Moscow’s view that AI is no longer just a commercial tool but a national-security asset. Domestic champions such as Sberbank and tech giant Yandex are leading efforts to catch up with U.S. and Chinese developers, though hurdles remain.

The Race Leaders — and a Closing Door

Vedyakhin admitted Russia lags the United States and China in raw computing power, talent pool depth, and access to high-end chips — the last being heavily constrained by Western sanctions. He estimated that the U.S. and China are ahead of all other AI nations, including Russia, by “six to nine months,” a gap that he said is widening.

“In this race, every day matters,” he said. “But those who haven’t started are falling behind the leaders by much more than a day with each passing day. For those who decide to join now, it will be extremely costly, almost impossible.”

He added that the AI club is effectively “closed,” given the capital and expertise now required to build competitive large language models.

Still, Moscow is trying to show momentum. Vedyakhin said Sberbank’s GigaChat 2 MAX LLM is comparable to OpenAI’s ChatGPT 4.0, and the company’s new GigaChat Ultra Preview model is on par with ChatGPT 5.0. To expand its footprint, Sberbank plans to make some newer models open source, including for commercial use.

The push comes as Russia looks for ways to offset its disadvantage in chip supply. Vedyakhin said the country would increasingly rely on domestic programmers and mathematicians to accelerate training and reduce costs.

“What we can’t achieve with sheer numbers, we achieve with skill,” he said.

The Cost of AI Power — and the Energy Question

Vedyakhin noted that the structural demands of AI development are immense. He estimated that Russia’s power sector alone needs 40 trillion roubles ($506 billion) for electricity generation and another 5 trillion roubles for grid upgrades over the next 16 years to meet anticipated AI-related computing needs.

The energy burden is already a global concern. He pointed out that a breakthrough could come from an LLM architecture that isn’t based on classic generative pre-trained transformer (GPT) designs, noting China’s DeepSeek in 2024 as an example of a step-change model structure.

But he warned that current AI infrastructure spending comes with serious economic uncertainty. Energy consumption is so high that returns on investment are “either very distant or not visible at all,” he said — a point that has been raised internationally as companies and governments pour hundreds of billions into data centers, chips, and electricity networks.

“There is overheated hype around infrastructure spending,” Vedyakhin told Reuters. He argued Russia is less exposed to “AI bubble risk” because its investment levels remain comparatively restrained.

However, the overall message was that the global race has already hardened into a contest where very few countries have the capacity to compete at the top. But that created the objective for Russia to build sovereign AI models, try to close the computing gap, and secure a place in what Vedyakhin described as the emerging “nuclear club of AI.”