(NAIROBI, KENYA) – Kenya has overtaken Ethiopia to become East Africa’s largest economy, ending five years of Ethiopian dominance after a sharp devaluation of the birr reduced Ethiopia’s gross domestic product in dollar terms.
Kenya’s GDP rose 13.7% to $135.92 billion (KES 17.57 trillion) in 2025, while Ethiopia’s fell 40% to $126.35 billion (KES 16.33 trillion), according to the latest International Monetary Fund World Economic Outlook.
The shift lifted Kenya one place to seventh among Africa’s largest economies, behind South Africa, Egypt, Nigeria, Algeria, Morocco and Angola.
The IMF expects Kenya to overtake oil producing Angola in 2028 and move into sixth place.
Ethiopia, seventh a year earlier, dropped to eighth, ahead of Tanzania, Uganda, Sudan, Rwanda, Somalia, Burundi and South Sudan.
IMF data put Ethiopia’s economy at $210 billion (KES 27.15 trillion) in 2024, the region’s largest at the time.
The reversal ended Addis Ababa’s five year run as the region’s leading economy, a period in which its output grew consistently by double digits.
Ethiopia’s GDP shrank by 40% to $126.35 billion (KES 16.33 trillion), according to the IMF.
The Ethiopian economy had stayed ahead of Kenya for five years, supported by heavy state investment in infrastructure, rising agricultural output and a growing services sector.
Critics said the country’s currency was largely overvalued because Addis Ababa tightly controlled the exchange rate.
“That was just the currency effect,” said Charlie Robertson, chief economic adviser to Equity Group Holdings chief executive James Mwangi, explaining why Ethiopia’s GDP contracted and allowed Kenya to overtake it.
In the second half of 2024, Ethiopia loosened its grip on the exchange rate as a condition for securing IMF financing.
The move led to the devaluation of the birr, with the full impact appearing in the 2025 GDP figures, Robertson said.
Robertson estimates the birr was 50% overvalued two years ago, meaning Ethiopia’s GDP in dollar terms was overstated by a similar margin.
“Today the birr is roughly 20% undervalued, so the [dollar] GDP figure is 20% too small,” Robertson said in a text message.
The Kenyan shilling’s recovery against the US dollar also lifted Kenya’s GDP in dollar terms, helping Nairobi reclaim the regional top spot.
Kenya held the position until 2020, when a rapidly expanding Ethiopian economy overtook it.
The rivalry between the two countries spans athletics, coffee and flower exports, and aviation, with Kenya seeking to make Nairobi a gateway through Kenya Airways while Ethiopia promotes Addis Ababa through Ethiopian Airlines.
Competition is also intense in attracting manufacturers in textiles, apparel and leather, as both seek to diversify exports, create jobs and cut reliance on raw materials.
Ethiopia’s large population makes it an attractive consumer market, with an estimated 135.5 million people in 2025, second in Africa only to Nigeria.
The rise in Kenya’s GDP ranking confirms the IMF’s earlier projection that Nairobi would overtake Addis Ababa.
By the end of 2025, Kenya’s GDP in dollar terms exceeded Ethiopia’s by $9.57 billion (KES 1.24 trillion).
Ethiopia’s economy in dollar terms was hit after the Horn of Africa nation devalued the birr to meet conditions for IMF financing.
The birr fell by more than a third against the US dollar from June 2024.
Kenya is expected to hold the position next year before moving up to sixth place in 2028 by overtaking Angola.
In its October outlook last year, the IMF projected Kenya would overtake Ethiopia after Addis Ababa devalued the birr as a condition for IMF financing.
The IMF report shows Ethiopia’s economy grew more than twice as fast as Kenya’s in real terms in 2025, expanding 9.2% against Kenya’s 4.6%.
In nominal dollar terms, however, Kenya’s GDP rose about 14% to $135.92 billion (KES 17.57 trillion), while Ethiopia’s fell nearly 40% from $210 billion (KES 27.15 trillion) to $126.35 billion (KES 16.33 trillion).
The reversal reflected exchange rate movements and how the two economies were valued in dollars, rather than a collapse in Ethiopia’s output.
The currency shifts turned a fast growing Ethiopian economy into a much smaller one in dollar terms, allowing Kenya to reclaim the regional economic crown.
Ethiopia had long kept tight control of its exchange rate, giving the birr an artificially high value and making imports cheaper, which raised fears among some observers that its GDP was overstated.
To secure a $3.4 billion (KES 440 billion) four year IMF loan, Ethiopia loosened its grip on the exchange rate, and the birr has fallen by more than a third against the US dollar since July last year.
Ethiopia instead adopted a market determined exchange rate, a relief for foreign companies such as Kenya Airways, which had said it struggled to unlock KES 1.5 billion ($1.5 billion) frozen in Ethiopia because of foreign exchange restrictions.
Ethiopia’s per capita GDP remains far lower than Kenya’s because of its large population.
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