IMF: Kenya Overtakes Ethiopia as East Africa’s Largest Economy
Ethiopia has lost its standing as East Africa’s largest economy, according to the International Monetary Fund. The shift marks a significant reversal in regional economic power after Ethiopia held the top position for roughly five years.
The change in rankings follows major currency reforms in Ethiopia, where the nominal gross domestic product dropped sharply in dollar terms. Economic output shrank from $210 billion in 2024 to $126.35 billion in 2025, according to the IMF.
Birr Depreciation Shrinks Ethiopia's Dollar GDP
The primary driver behind the economic reshuffling is the depreciation of the Ethiopian birr rather than a collapse in domestic production. In July 2024, Ethiopia introduced a market-determined exchange-rate system as part of a $3.4 billion financing program backed by the International Monetary Fund. This policy change forced the birr to drop by over a third against the US dollar starting in June 2024.
Charlie Robertson, chief economic adviser to Equity Group Holdings CEO James Mwangi, explained to Business Daily that two years ago the Ethiopian currency was overvalued by roughly 50 percent, which artificially inflated the country’s dollar-denominated GDP. When the government loosened its grip on the exchange rate, the adjustment fully impacted the 2025 figures.
By contrast, Kenya benefited from a relatively stable shilling during the same period. Kenya’s economy grew in dollar terms to $135.92 billion, allowing Nairobi to reclaim the regional economic lead and rise to the seventh-largest economy in Africa, just behind South Africa, Egypt, Nigeria, Algeria, Morocco, and Angola.
News: #Kenya overtakes #Ethiopia as East Africa’s largest economy in dollar terms, #IMF estimates showAddis Abeba – Kenya has overtaken Ethiopia as #Eastern _frica’s largest economy measured by nominal gross domestic product (#GDP) in #US dollar terms, according to the… pic.twitter.com/DV0BPFuXgl
Despite the nominal GDP gap, Ethiopia maintains a larger economy when measured by purchasing power parity, a metric that accounts for local price differences. Ethiopia continues to record higher underlying economic growth. IMF estimates show Ethiopia’s economy expanded by 9.2 percent in real terms in 2025, compared with Kenya’s 4.6 percent growth rate.
Security Pressures and Investment Challenges in Ethiopia
Alongside currency pressures, Ethiopia faces renewed security concerns that threaten to complicate its long-term economic recovery and investment appeal. Fresh fighting between federal forces and Tigrayan rebels has heightened regional instability risks.
Prime Minister Abiy Ahmed announced a caretaker administration for the Tigray region on October 16 after government-aligned forces regained control of Mekelle. These developments raise questions about the durability of the 2022 peace agreement, while concurrent tensions with neighboring Eritrea add to investor anxiety.
Such security challenges threaten to disrupt trade, increase operating costs, and deter foreign direct investment in major infrastructure and manufacturing projects. Conversely, Kenya continues to position itself as a stable commercial hub, bolstered by massive proposed industrial projects such as Nigerian billionaire Aliko Dangote’s $16 billion oil refinery in Lamu.
Kenya has officially overtaken Ethiopia as East Africa’s largest economy, recording a GDP of Sh17.6 trillion compared to Ethiopia’s Sh16.4 trillion, according to updated IMF figures. But the story behind this headline rank shift isn't about productivity, it's about foreign…
At the same time, Kenya must manage its own domestic financial pressures, including high public debt and heavy borrowing costs that strain government finances.
IMF Projects Widening Economic Gap Between Kenya and Ethiopia
International Monetary Fund projections indicate that the economic gap between the two countries will continue to expand. Kenya’s gross domestic product is projected to reach $151.15 billion by the end of 2026, while Ethiopia’s GDP is expected to register at $127.15 billion, widening the difference to $24 billion.
Businesses operating across East Africa are monitoring these currency and regulatory shifts closely. Firms managing cross-border supply chains or launching long-term capital investments often rely on specialized corporate financial consultants and trade risk analysts to handle fluctuating exchange rates and regional regulatory changes.
While Kenya solidifies its position as the seventh-largest economy on the continent—with forecasts pointing toward sixth place by 2028—the long-term trajectory depends on how effectively both nations manage public debt, currency stability, and regional security.