By Murungi Ndai
As East Africa moves into 2026 and 2027, the region looks poised to maintain above‑average growth relative to Sub‑Saharan Africa, but a mix of political transitions, fiscal pressures, and structural bottlenecks will shape the economic trajectory. Latest projections from the African Development Bank (AfDB) and the International Monetary Fund (IMF) suggest cautious optimism, with opportunities and risks in equal measure.
The AfDB’s African Economic Outlook shows that East Africa is set to be the continent’s fastest‑growing region, with GDP expansion projected to rise from an estimated 4.4% in 2024 to about 5.3% in 2025 and 6.1% in 2026. This performance significantly outpaces other African regions and reflects resilient domestic demand and policy reforms.
At the broader Sub‑Saharan level, the IMF’s World Economic Outlook indicates steady regional growth at around 4.1% in 2025, with a moderate pick‑up expected in 2026 despite persistent headwinds from global trade tensions and slower external demand.
Political cycles will be a determining factor for investment confidence across the region. Uganda’s general election is scheduled for January 15, 2026, where President Yoweri Museveni seeks another term. Political uncertainty around polls can affect fiscal planning and external financing arrangements of this E. African country that has a GDP of USD 64 billion.
Meanwhile, Kenya, East Africa’s largest economy with a GDP of above USD 130 billion, is entering a general election year in 2027, which may slow down both public and private sector investment as political calendars take precedence over policy continuity. The 2026 being an year before the general election will witness budget alignment and investor confidence shifts.
With a GDP of USD 85 billion, Tanzania is still struggling with the post-election effect where the investor confidence was hugely affected. The president has also urged for domestic resourcing to finance the budget through their natural resources and broadening the tax base after a €156 million (about Sh400bn) in aid was suspended.
Fiscal management remains a core challenge. Kenya’s government projects a wider budget deficit of 5.3% of GDP in the 2026/27 fiscal year, reflecting ongoing borrowing to support infrastructure and service delivery. High debt servicing requirements across the region are squeezing fiscal space and crowding out productive investment.
Globally, the IMF has already flagged that many African countries continue to grapple with high public debt and limited fiscal buffers, reinforcing the need for prudent public finance strategies to avoid macro‑economic stress.
Reforms to stimulate investment and enhance competitiveness are critical. East Africa’s integration into broader continental frameworks like the African Continental Free Trade Area (AfCFTA) offers significant upside, but effective implementation remains uneven.
Infrastructure investments especially in transport, energy, and digital connectivity are essential to reduce business costs and boost regional competitiveness. Countries that accelerate reform to cut red tape, protect property rights, and deepen financial markets will likely attract more Foreign Direct Investment (FDI).
Inflation dynamics in East Africa have moderated after the historic surge following global supply disruptions. While monetary policy remains supportive, governments must balance inflation control with growth objectives to support household consumption and private sector activity.
Tanzania has the lowest CRB rate of 5,75 that is aimed at supporting lending and stabilize her inflation while Uganda’s rate of 9.75% aimed at containing inflation with the need for growth, especially given external uncertainties. Kenya has continuously reduced the CRB rate to 9% aiming to reduce borrowing costs and stimulate private sector lending, although commercial loan rates remain elevated relative to the policy rate.
The economic outlook for East Africa in 2026–2027 is better than most African regions and compared to global peers, underpinned by strong domestic demand, a youthful population, and ongoing reforms. The AfDB’s forecast of East Africa growing above 6% in 2026 captures this potential.
Yet, political transitions, rising debt, and the need for deeper structural reforms temper the optimism. For sustainable and inclusive growth, governments must prioritize fiscal prudence, institutional strengthening, competitiveness, and structural transformation. Only then can the promise of strong growth translate into meaningful improvements in living standards across the region.
