Treasury PS Cris Kiptoo and CS John Mbadi duiring a high-level discussion with the International Monetary Fund (IMF) team. [Courtesy]
Deal or no deal? Why cash-strapped government is awaiting IMF bailout
Business
By
Brian Ngugi
| Oct 06, 2025
The International Monetary Fund (IMF) is set to announce later this week whether it has reached a new financial agreement with Kenya.
The closely watched decision will determine the fate of the cash-strapped Ruto government’s efforts to stabilise an economy buckling under a high debt burden.
The announcement follows a two-week assessment tour by an IMF staff team, led by Mission Chief Haimanot Teferra, which is set to conclude this week on Thursday (October 9).
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The team is in Nairobi to initiate discussions on a possible new IMF-supported programme at the request of the Kenyan authorities.
"The IMF remains committed to supporting Kenya in its efforts to maintain macroeconomic stability, safeguard debt sustainability, strengthen governance, and promote inclusive and sustainable growth for the benefit of the Kenyan people," Ms Teferra had said at the outset of the visit.
The outcome of these talks is critical for President William Ruto’s administration, which is grappling with a public debt of Sh11.81 trillion as of June this year, amid persistent revenue shortfalls and a short deadline to deliver on its rosy pledges with the looming 2027 General Election.
A positive decision from the IMF would provide a vital lifeline, unlocking access to cheaper financing and restoring investor confidence.
A rejection or delay would signal deepening economic troubles and limit the government's options, analysts say.
The government’s formal request for a new programme marked a swift return to the global lender, coming just months after a previous $2.3 billion (Sh300 billion) arrangement was abruptly terminated over Kenya's failure to meet key targets.
That move cost the country Sh110 billion in planned funding and exposed the government's fragile fiscal position. The push for a new bailout underscores the limited room the Treasury has to manoeuvre.
Domestic borrowing is expensive and has surpassed internal limits, while access to international capital markets remains constrained by high interest rates.
A recent $1.5 billion (Sh210 billion) Eurobond issuance, while successfully oversubscribed, was taken out at rates between 7.875 per cent and 8.8 per cent—significantly higher than previous issues—and was primarily used to pay off older debt, a strategy analysts warn simply reschedules the problem.
Further complicating the government's position is a significant tax collection shortfall.
The Treasury recently revealed that the Kenya Revenue Authority (KRA) missed its July target by Sh20.1 billion, forcing a downward revision of full-year revenue projections by Sh437 billion.
This has crippled the government's ability to fund its signature "Bottom-Up" development agenda without drastic spending cuts or increased borrowing.
Any new IMF programme is expected to come with stringent conditions, likely including deep spending cuts, reforms to bloated state-owned enterprises, and enhanced tax measures.
These conditions are politically sensitive, as similar IMF-backed tax hikes in the since-withdrawn Finance Bill 2024 ignited widespread, youth-led protests that resulted in dozens of deaths.
The IMF has also signalled that governance and anti-corruption reforms will be central to any new agreement.
A recent IMF governance diagnostic mission concluded its work in June, with a draft report identifying systemic vulnerabilities expected by year's end.
The Fund's board will be expected to review the staff-level findings and announce its decision imminently, setting the stage for a painful economic adjustment for Kenyans if a deal is struck.
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