Years of heavy public borrowing have crowded out private investment and left the economy struggling to absorb graduates Youth during the National Youth Opportunities Towards Advancement Fund at Kisii National Polytechnic on July 10, 2026 Kenya's debt-driven economic growth model is increasingly undermining the country's ability to create quality jobs, the World Bank has said.
In the Kenya Country Growth and Jobs Report, the World Bank warns that years of heavy public borrowing have crowded out private investment and left the economy struggling to absorb hundreds of thousands of young people entering the job market each year. While Kenya recorded solid economic growth averaging 4.5 per cent annually between 2001 and 2025, the model that powered that expansion is no longer delivering enough formal jobs, productivity gains or sustained prosperity.
The report identifies fiscal, external, productivity and climate challenges as the four structural constraints now weighing on the economy, but places particular emphasis on the country's debt-financed growth model, saying it has increasingly squeezed the private sector which is the biggest engine for job creation.
"Economic growth that also brings increasing private investment and quality jobs is unable to be sustained and be inclusive if constraints are not addressed," the report says, adding that the economy has failed to generate enough higher-paying jobs for the majority of workers.
About 800,000 Kenyans join the labour market every year, yet fewer than 100,000 secure formal jobs. This leaves the majority to find work in low-productivity informal services and traditional agriculture, where wages and opportunities for advancement remain limited.
The lender says Kenya's growth over the past two decades has been driven largely by government spending, construction and services rather than labour-intensive sectors such as manufacturing and agribusiness that typically create large numbers of formal jobs. It argues that the government's ambitious infrastructure programme and expansion of public spending were financed through sustained borrowing, pushing public debt to 71.3 per cent of GDP by the end of 2025 while exposing the country to growing fiscal risks.
While the investments helped support economic expansion, the report says they also contributed to rising fiscal deficits, increasing interest payments and reduced fiscal space, with government borrowing increasingly crowding out private investment. "The influx of foreign currency via government debt supported increases in public sector consumption," the report says.