Ruto secures Sh43bn loan

Kenya has secured a Sh43.3 billion (€293.88 million) loan from the African Development Bank (AfDB), the second major external disbursement the government has received in the last three weeks.

This latest foreign loan comes as the cash-strapped President William Ruto's administration fills the vacuum left by the International Monetary Fund’s (IMF's) departure by turning to regional and global lenders with fewer political strings attached.

But analysts warn that the back-to-back facilities – totaling to roughly Sh140 billion including the World Bank's recent Sh97.1 billion ($750 million) approval on June 29 – are a temporary stop gap measure for a deeper fiscal malady marked by a revenue system that consistently misses its targets at a time the embattled government is reluctant to impose unpopular taxes few months before the general election.

The AfDB approval, confirmed on July 8, marks the second phase of Kenya's Economic Inclusion and Green Recovery Support Programme (EIGRSP II).

“The Board of Directors of the African Development Bank Group (Bank Group) has approved, on July 8, a €293.88 million loan to support the second phase of Kenya’s Economic Inclusion and Green Recovery Support Programme (EIGRSP II), reaffirming the Bank Group’s longstanding partnership with the country,” said AfDB in a statement.

“The loan will support reforms in economic governance, improve the management of public resources, expand opportunities for youth and women, back small businesses and advance climate-resilient growth.”

Unlike project-based lending that finances specific infrastructure like roads or power plants, this is "budget support" cash that goes directly into the national treasury, giving the Ruto government flexibility to pay civil servants, fund hospitals and schools as well as service maturing debts without slashing essential services.

The Ruto government needs to raise roughly Sh1.1 trillion to cover its spending shortfall this fiscal year, meaning the AfDB and World Bank facilities together cover just over 12 per cent of that gap.

The IMF terminated its multi-year funding arrangement with Kenya in March 2025, denying the country a final Sh109.8 billion tranche after it failed to meet performance conditions, including targets on revenue collection and debt management.

Talks on a new IMF programme are ongoing, but no deal has been reached.

With the next general election scheduled for August 2027, Kenya is now entering the final 14 months before the polls.

The IMF had prescribed painful conditions such as higher taxes, job freezes, spending cuts, and restructuring of State-owned enterprises that analysts say would be politically difficult for the Ruto-led government to implement in an election year.

The Ruto Treasury has already omitted IMF funding from the national budget for the year starting July.

The AfDB and World Bank, by contrast, have imposed conditions that are less overtly austere namely governance reforms, transparency measures, and improved procurement systems – politically easier to sell than new taxes or layoffs, officials and analysts say.

The loan backs "public financial management" reforms – a technical phrase that essentially means fixing how the government handles money. The government has historically lost billions of shillings to corruption, duplicated spending, and idle cash sitting in thousands of scattered government bank acccunts.

Under pressure from lenders, the Ruto Treasury has been directed to use a single centralized account – the Treasury Single Account – to consolidate all government cash.

This move is expected to give the John Mbadi led finance ministry a clearer view of available funds, reduce costly overdrafts, and lower the risk of money going missing.

The programme also pushes for electronic government procurement, moving public contracting online to make it more transparent and harder to rig. For Kenyan businesses, this could mean fairer competition for government tenders, which have long been a source of graft.

The "Green Recovery" component refers to climate-resilient investments.

Kenya has suffered repeated droughts and devastating floods in recent years that have destroyed crops, displaced communities, and cost the economy billions. The AfDB wants to see public spending directed toward flood defences, drought-resistant agriculture, and renewable energy.

The "Economic Inclusion" element targets micro, small and medium-sized enterprises (MSMEs) – the millions of informal traders, workshops, and small farms that employ about 80 per cent of Kenya's workforce.

The programme aims to improve access to credit for these businesses and expand social protection programmes, ensuring cash transfers reach the poorest households through Kenya's Enhanced Single Registry – a digital database that helps identify legitimate beneficiaries and reduce duplication.

Despite the external inflows, Kenya's fiscal fundamentals remain shaky.

The Kenya Revenue Authority has persistently missed its collection targets.

The taxman missed its revenue collection target for the 2025/26 fiscal year by roughly Sh132 billion, official data showed recently, as sluggish formal sector employment and tax policy changes undercut domestic receipts despite the strongest overall growth in recent years.

The KRA collected Sh2.844, up 10.6 per cent from the previous year, but fell short of a combined target of approximately Sh2.976 trillion for exchequer and agency revenues, according to the authority's end-year performance report.

Domestic revenue was the main drag, posting a 93 per cent performance rate against a Sh1.991 trillion target. Pay As You Earn (PAYE) grew just 6.7 per cent – below the 8.5 per cent average of the previous two years – as formal sector employment shrank to 15.3 per cent of total employment, down from 15.7 per cent in 2022. Domestic VAT collections were hit by a policy change halving the levy on petroleum products to 8 per cent in May and June, which generated substantial refund claims. Customs revenue, however, overperformed at 100.8 per cent of its target, driven by robust oil tax collections.

The shortfall piles fresh pressure on the Treasury, which is struggling to plug a Sh1.1 trillion budget deficit with debt service consuming more than a quarter of national spending.

KRA said it would double down on digital reforms in the current fiscal year, including expanded electronic invoicing and artificial intelligence tools, to improve compliance and seal revenue leakages.

With multilateral funding frozen for much of 2026, the Treasury had been forced to rely almost entirely on domestic borrowing – a strategy that crowds out private sector lending and pushes up interest rates for ordinary borrowers.

The AfDB, which has supported Kenya's development priorities since the country became a member in 1964, has financed over 167 projects valued at more than $7.8 billion across infrastructure, energy, agriculture, water, and governance.

“Kenya has demonstrated resilience in navigating a challenging global environment while continuing to pursue important reforms to strengthen its economy and create opportunities for its people,” said Abdoulaye Coulibaly, Director of the African Development Bank Group’s Governance Department.

"This operation supports reforms that will strengthen public institutions, improve the efficiency and transparency of public spending, expand opportunities for young people and entrepreneurs, and help build a more resilient and inclusive economy.”

But for Government, the AfDB's approval is a double-edged sword, analysts and Treasury mandarins admit. It fills the IMF-sized hole in the budget, yet it also delays the hard choices on revenue reform and expenditure restraint that economists say are essential for long-term sustainability.

"The danger is that these loans become a crutch that allows the government to avoid structural fixes," said a Treasury official who declined to be named due to the sensitivity of the topic. "Come 2027, if revenues haven't improved and the election is over, the country could find itself in an even deeper hole with fewer friends to call."