No deal yet as IMF concludes Kenya review amid more talks

The International Monetary Fund (IMF) has concluded two weeks of critical talks with the Kenya Kwanza government, signalling progress in discussions for a new financial programme but stopping short of announcing a staff-level agreement.

This leaves the cash-strapped Ruto administration in a tense waiting game.

In a statement issued at the end of the visit, the IMF mission chief highlighted “constructive engagement” but made clear that a deal to unlock fresh funding was not yet on the table, with technical work set to continue in Washington.

An IMF staff team led by Haimanot Teferra was in Nairobi from September 25 to October 9 to assess the country’s economic situation and initiate discussions on a potential new IMF-supported programme.

“The IMF staff team made progress in taking stock of the latest macroeconomic and financial sector developments, assessing the economic outlook, and holding initial discussions with the Kenyan authorities and other stakeholders on a reform agenda that could pave the way for an IMF-supported programme,” Teferra said in a statement released by the Fund.

The statement outlined the policy priorities under discussion, which are set to form the backbone of any future agreement.

These include “measures to enhance fiscal policy credibility, ensure sustainability of public finances and debt, and minimise fiscal, financial, and external sector risks as well as ways to enhance governance, transparency, and efficiency in the public sector.”

The statement, however, confirmed that no immediate breakthrough was achieved.

“The team will return to Washington, DC, to further its technical work. The discussions with the authorities will continue during the upcoming IMF Annual Meetings,” Teferra said, indicating that the path to a deal remains ongoing.

The team held high-level meetings with President William Ruto, Treasury Cabinet Secretary John Mbadi Ng’ongo, and Central Bank Governor Kamau Thugge, underscoring the importance of the talks for the Kenya Kwanza administration.

The absence of an immediate deal prolongs the uncertainty for President Ruto’s government, which is grappling with a public debt of Sh11.81 trillion as of June amid persistent revenue shortfalls.

A positive decision from the IMF is seen as a vital lifeline to unlock cheaper financing and restore wavering investor confidence.

The government’s formal request for a new programme marks 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 Treasury’s limited room 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 (Sh195 billion) Eurobond issuance, while successfully oversubscribed, was taken out at costly rates and was primarily used to pay off older debt.

Further complicating the government’s position is a significant tax collection shortfall. 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, if concluded, 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.

Despite the lack of an immediate deal, the IMF struck a collaborative tone. “We welcome the Kenyan authorities’ candid engagement and remain steadfast in our commitment to partnering with Kenya to secure a more robust, sustainable, and inclusive economic future for all Kenyans,” Teferra’s statement concluded.

 The Fund’s executive board will make the final decision on any new programme after reviewing the staff-level findings.