The World Bank lifted Kenya's economic growth forecast for this year to almost 5% on Monday, citing a pick up in the construction sector in East Africa's largest economy.

Some of Kenya's main industries like construction suffered last year, partly as concerns mounted about the government's finances, but the trend has begun to reverse, the development lender said.

"Signs of recovery are emerging," a new report on Kenya's economy said, adding that the rebound in construction in the first half of 2025 had offset a slowdown in manufacturing.

The result is that the economy is now projected to grow by 4.9% this year, up from the World Bank's May forecast of 4.5%, and maintain that rate of growth over the next two years.

Risks to the outlook stem from international trade uncertainty, including the expiry of a US trade deal with the region, and ongoing fiscal consolidation that could curb government spending, the report said.

Government officials say Kenya's economic expansion has also been negatively affected by a heavy public debt burden characterised by high annual repayments that have absorbed much of its revenue.

The government has turned to measures like loans securitised on a motorists' road maintenance levy on petrol prices to raise funds to pay road contractors who had abandoned sites last year due to lack of payment.

It is also in talks with the International Monetary Fund to secure a new financial support programme. Differences remain, however, including over whether the securitised borrowing should be classified as government debt or not.

Monday's World Bank report laid out a set of reforms the government should carry out to boost competition and support investment and economic growth.

Barriers to competition include the presence of more than 200 state owned firms that benefit from undue advantages, distorting competition, and restrictions on foreign investments, it said.

"There is significant room to make Kenya's regulatory framework less restrictive to competition," the lender said.