The World Bank has called on Kenya to increase consumption-based taxes and streamline public spending to strengthen fiscal sustainability and support economic growth, according to the World Bank’s October 2025 report.

In its latest Kenya Economic Update (October 2025), the lender said higher value-added and excise taxes, combined with targeted social protection, would help balance the government’s revenue mix and reduce reliance on external borrowing.

Kenya’s fiscal deficit widened to an estimated 5.7% of GDP in FY 2024/25 amid slower revenue collection and rising debt-service costs. The Bank warned that continued reliance on income taxes and public-sector levies could constrain private investment, urging Nairobi to shift toward more efficient consumption-side taxation to “preserve growth momentum and debt sustainability.”

“Kenya has made commendable progress on fiscal consolidation, but stronger and fairer revenue mobilisation is essential to protect growth and support jobs,” said Keith Hansen, the World Bank’s Country Director for Kenya, Rwanda, Somalia and Uganda.

The report also recommends simplifying compliance for small and medium-sized firms, modernising customs administration, and improving digital-tax enforcement to capture the informal sector. The Bank projects Kenya’s GDP growth will rebound to 5.3% in 2025, supported by moderating inflation and a recovery in agriculture, but says fiscal reforms remain critical to sustain investor confidence.

The Kenyan Treasury said it is reviewing the proposals as part of its Medium-Term Revenue Strategy, which seeks to raise the tax-to-GDP ratio from 15.3% to 18% by 2027. Finance Minister Njuguna Ndung’u has previously stated that reforms will focus on “broadening the tax base while safeguarding competitiveness.”

Kenya’s reform agenda is also aligned with the East African Community’s 2025 Tax Harmonisation Framework, which aims to reduce distortions in regional trade and encourage coordinated VAT systems across member states. Neighbouring Tanzania and Uganda have already raised VAT compliance rates above 70%, offering a benchmark for Kenya’s reform ambitions.

The World Bank maintained Kenya’s risk of debt distress as moderate, citing continued access to concessional financing and a growing manufacturing base, but cautioned that fiscal slippage could “undermine gains made in macroeconomic stabilisation.” Public-debt service is projected to absorb about 58% of revenues in FY 2025, underscoring the urgency of stronger domestic mobilisation.