Kenya could save an estimated Ksh192.8 billion annually by tackling corruption, closing tax loopholes and improving public spending, potentially easing pressure on the country’s debt and freeing up money for development, a new World Bank report has revealed.
The proposed savings, equivalent to approximately 18 per cent of the planned FY2026/27 budget deficit, highlight the financial gains Kenya could unlock by addressing corruption and inefficiencies within government institutions.
In its 34th edition of the Kenya Economic Update, the World Bank warns that corruption and collusion are already increasing the country’s annual budget deficits by an estimated two percentage points of Gross Domestic Product (GDP), creating additional borrowing needs that accumulate over time.
“Corruption and collusion are likely to have increased annual deficits by 2 percentage points of GDP,” the report states.
Based on an estimated GDP of Ksh17.6 trillion, the additional deficit burden translates into approximately Ksh352 billion, illustrating the scale of resources potentially lost through governance failures.
The report argues that improving public procurement, strengthening tax compliance and eliminating opportunities for preferential government contracts could significantly improve Kenya’s fiscal position.
Billions lost in contracts
Public procurement is one of the biggest areas of concern, with approximately 10 per cent of Kenya’s GDP channelled through government tenders.
Despite the enormous amounts involved, transparency remains limited. The World Bank reports that only Ksh186 billion, representing 1.15 per cent of GDP, had detailed contract information published in the 2024/25 financial year.
The Mombasa-Nairobi Standard Gauge Railway (SGR) illustrates the potential cost of weak procurement controls.
Kenya’s railway cost approximately US$7.6 million per kilometre, compared with US$5.7 million for Tanzania’s electrified railway and US$5.3 million for the Djibouti-Addis Ababa railway.
Using Tanzania’s cost as a benchmark, the World Bank estimates that Kenya could have saved up to US$900 million.
The report attributes at least 30 per cent of the potential cost difference to governance challenges, including direct contracting instead of competitive tendering, land speculation and outright fraud.
Electricity procurement presents another opportunity for savings.
Of 42 power purchase agreements signed by Kenya Power, only 24 per cent were known to have undergone competitive procurement.
The World Bank notes that competitively procured solar projects are approximately 47 per cent cheaper than directly negotiated deals.
Borrowing costs could fall
Beyond savings from government contracts, Kenya could also reduce the cost of borrowing by improving its governance and corruption record.
The World Bank estimates that a one-standard-deviation improvement in Kenya’s corruption score could lower external borrowing costs by between 50 and 100 basis points.
That could translate into annual savings of US$50 million to US$100 million, reducing the amount of money spent servicing external debt.
The findings come as the National Treasury faces competing demands for infrastructure investment, public services and debt repayments.
The report warns that corruption not only increases government expenditure but also weakens revenue collection by encouraging tax evasion and undermining public confidence in the tax system.
It identifies the private sector as another casualty.
Some 39 per cent of Kenyan businesses identify corruption as a major constraint, compared with 25 per cent in 2013.
Additionally, 36 per cent of firms reported at least one bribery request in the preceding year.
Medium-sized businesses are particularly exposed, with 48.2 per cent expected to give gifts to get things done.
The World Bank further finds that firms exposed to bribery are more than 30 per cent less likely to innovate, raising concerns about productivity, investment and employment creation.
Millions of jobs possible
The potential economic gains extend beyond reducing Kenya’s budget deficit.
According to the World Bank’s modelling, moderate anti-corruption reforms could increase GDP by 8.7 per cent by 2035.
Under a stronger reform scenario, economic output could rise by 22.3 per cent, while the country could generate up to 7.7 million additional and better-quality jobs.
The stronger reform scenario could also reduce Kenya’s debt-to-GDP ratio by as much as 18 per cent.
“For Kenya to progress toward its long-term development vision, ‘Road to Singapore’, embarking on a governance transformation will be critical,” the report states.
The World Bank recommends accelerating the rollout of electronic government procurement, implementing the Conflict of Interest Act, 2025, publishing beneficial ownership information and introducing competitive auctions for power purchase agreements.
These measures would strengthen oversight by institutions such as the Ethics and Anti-Corruption Commission (EACC), the National Treasury and the Kenya Revenue Authority (KRA).
The report’s central message is that Kenya’s fiscal challenges cannot be addressed through higher taxes and additional borrowing alone.
Reducing corruption, improving government spending and restoring confidence in public institutions could unlock resources currently lost through inefficiency and poor governance.
