Ethiopian Prime Minister Abiy Ahmed (left) and Kenyan President William Ruto. Kenya has overtaken Ethiopia as East Africa’s largest economy, according to the IMF’s October 2026 World Economic Outlook. Photo credit: Collage by Business Insider Africa
- Kenya has overtaken Ethiopia as East Africa’s largest economy, mainly due to the depreciation of the Ethiopian birr.
- Kenya’s GDP is projected at $135.92 billion in 2025, ahead of Ethiopia’s $126.35 billion, with the gap expected to widen to $24 billion in 2026.
- Renewed insecurity in Ethiopia’s Tigray region and concerns over the 2022 peace agreement could further deter foreign investment and harm economic stability.
- While Ethiopia maintains stronger real GDP growth rates than Kenya, currency movements and investor preferences have shifted economic leadership in the region back to Kenya.
According to the International Monetary Fund’s (IMF) October 2026 World Economic Outlook, Kenya’s gross domestic product (GDP) stood at $135.92 billion in 2025, surpassing Ethiopia’s $126.35 billion by $9.57 billion.
The shift marks a significant reversal in East Africa’s economic rankings, with Kenya reclaiming its position as the region’s largest economy after roughly five years.
The gap is projected to widen to $24 billion in 2026, strengthening Kenya’s standing as a regional commercial hub while Ethiopia faces currency pressures and renewed security concerns that could undermine investor confidence.
Ethiopia’s economy, valued at $210 billion in 2024, fell to $126.35 billion in dollar terms in 2025 following major currency reforms.
In July 2024, the country introduced a more market-determined exchange-rate system under an IMF-supported $3.4 billion financing programme, allowing the birr to depreciate against the US dollar.
Consequently, Ethiopia’s economic output lost substantial value when converted into dollars, despite continued growth in domestic production.
Kenya, meanwhile, benefited from a relatively stable shilling, which helped preserve the dollar value of its economy.
Currency movements largely explain the reversal in rankings rather than a significant difference in the countries’ underlying economic growth.
However, Ethiopia still has a larger economy than Kenya when measured by purchasing power parity (PPP), which accounts for differences in local prices. Kenya’s lead is based on nominal GDP measured in US dollars.
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While currency depreciation has reshaped the economic rankings, Ethiopia also faces renewed security challenges that could affect its investment prospects.
Fresh fighting between federal forces and Tigrayan rebels has raised concerns about the country’s stability and economic recovery.
On October 16, Prime Minister Abiy Ahmed announced a caretaker administration for Tigray after government-aligned forces regained control of the regional capital, Mekelle.
The developments have raised concerns about the durability of the 2022 peace agreement, while tensions with neighbouring Eritrea have heightened fears of wider regional instability.
The insecurity could discourage foreign investment, disrupt trade and increase operating costs, particularly for companies planning long-term infrastructure and manufacturing projects.
The IMF has also identified domestic security risks as a potential threat to Ethiopia’s economic outlook.
Meanwhile, Kenya could attract investors seeking alternative regional business locations,supported by Nairobi’s established financial services, technology and logistics sectors.
The country’s investment ambitionsare reflected in Nigerian billionaire Aliko Dangote’s proposed $16 billion oil refinery in Lamu, a project that could strengthen Kenya’s position as an industrial and energy hub if completed.
However, Kenya continues to face economic challenges, including high public debt, borrowing costs and pressure on government finances.
Despite falling behind Kenya in nominal GDP, Ethiopia continues to record stronger underlying economic growth.
IMF estimates show Ethiopia’s economy expanded by 9.2% in real terms in 2025, compared with Kenya’s 4.6%, demonstrating that the change in rankings largely reflects exchange-rate movements rather than faster growth in Kenyan production.
Looking ahead, the IMF projects Kenya’s GDP will reach $151.15 billion in 2026, compared with Ethiopia’s $127.15 billion, widening the gap between the two economies to $24 billion.
The projections also place Kenya seventh among Africa’s largest economies, behind <a href="https://absafricatv.com/south-africa-vs-australia-prediction-team-news-pitch-report-and-betting-tips-for-2nd-test/" title="South Africa vs. Australia prediction, team news, pitch report and betting tips for 2nd Test”>South Africa, Egypt, Nigeria, Algeria, Morocco and Angola.
