Nairobi — Kenya's widening fiscal vulnerabilities have become the most urgent threat to the country's economic outlook, the World Bank has warned, citing persistent budget imbalances, stalled revenue reforms and high recurrent spending.

In its latest Kenya Economic Update, the lender says missed fiscal consolidation targets and slow progress in raising revenues have created a drag on growth that now outweighs other domestic and external risks.

"Ongoing fiscal challenges, including missed consolidation targets and high recurrent expenditures, remain a key source of vulnerability for Kenya's economic outlook," the report notes, adding that "without more ambitious reforms, fiscal and debt vulnerabilities are likely to persist."

The Bank cautions that austerity alone will not resolve Kenya's fiscal pressures unless supported by governance reforms, improved spending efficiency and productivity gains. At the same time, falling real wages and weak job creation continue to strain households and limit economic momentum.

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The report also flags political and social tensions as potential disruptors of business activity and investor confidence, while climate risks -- especially droughts and floods -- threaten agriculture, drive inflation and trigger costly emergency interventions.

Global uncertainties, including geopolitical tensions and supply chain disruptions, pose additional risks by pushing up the cost of fuel, food and industrial imports.

Despite the pressures, the World Bank says Kenya could achieve stronger growth if it accelerates reforms in public financial management, governance and expenditure efficiency, while a more favourable global environment--such as stable commodity markets and lower oil prices--would offer further support.