Ethiopia maintained a rigid exchange rate system, which underwent a major liberalization in July 2024, ending over fifty years of strict control over the birr. The immediate result: a depreciation of over 55% of the national currency against the dollar. While this move allowed Addis Ababa to unlock critical funding $3.4 billion from the IMF and $16.6 billion from the World Bank it also left the economy vulnerable in the short term.
The government’s stated goal is clear : to restructure at least half of its external debt, currently estimated at $28.9 billion, while regaining investor confidence. But the transition remains risky in an economically unstable regional environment.
Kenya benefits from a strengthened shilling
In contrast, Kenya is currently enjoying a favorable momentum. The Kenyan shilling appreciated by about 21% over the past year, making it the world’s best-performing currency during that period. This feat is attributed to several factors: the issuance of a $1.5 billion international bond; an increase in foreign currency reserves; strong remittances from the diaspora; and solid export performance. This monetary stability has enabled Nairobi to maintain a relatively steady growth path, with GDP projected to reach $132 billion in 2025, compared to $117 billion for Ethiopia.
However, this economic upswing masks deep social tensions. The government’s plan to raise taxes and reduce the budget deficit sparked a wave of deadly protests in 2024, forcing the administration to backtrack on several fiscal reforms. The four-year, $3.6 billion program with the IMF was even prematurely interrupted, depriving the country of around $850 million in aid. Kenya is now in negotiations with the Bretton Woods institution for a new program, at a time when its projected growth has been slightly revised downward (4.8% instead of the initial 5%).
A region under international pressure
The economic competitiveness between Kenya and Ethiopia is unfolding within an unfavorable global environment. Trade wars and increased U.S. tariffs have led the IMF to revise its global growth forecast downward from 3.3% to 2.8% for 2025. In Sub-Saharan Africa, expected growth is only 3.8%, the slowest pace since the COVID-19 pandemic. Despite this bleak outlook, Ethiopia is still expected to post 6.6% growth in 2025 (compared to a previous forecast of 6.5%), partially offsetting the effects of the birr’s devaluation.
The economic battle between Kenya and Ethiopia reflects the contrasting dynamics of East Africa: monetary stability versus structural reforms, sustained growth versus social tensions, internal adjustments versus external pressures. In this context, the resilience and adaptability of these economies will be key in determining their long-term position on the continental stage.
