Kenya has abruptly reversed course by requesting the International Monetary Fund (IMF) to consider releasing Ksh103.77 billion in funds it planned to leave on the table as part of a new programme just days after announcing abandoning the final review of its existing $3.6 billion (Ksh467 billion in the current exchange rates) loan arrangement.
The move comes as S&P Global Ratings on Monday warned that missed IMF disbursements could delay critical funding from the World Bank and the United Arab Emirates (UAE), raising fresh concerns over the country’s debt management strategy.
S&P cautioned that Kenya’s failure to secure the IMF’s final $850 million (Ksh110.25 billion in the current exchange rates) tranche may disrupt anticipated inflows, including an $800 million (Ksh103.77 billion in the current exchange rates) World Bank loan and a $1.5 billion (Ksh194.56 billion in the current exchange rates) UAE facility expected in early 2025.
“IMF funding often serves as a catalyst for other official and private flows,” S&P said, noting that Nairobi may now rely on costlier domestic borrowing to bridge financing gaps. The ratings agency also flagged risks to Kenya’s debt-servicing costs, which have surged under President William Ruto’s administration.
Treasury Cabinet Secretary John Mbadi confirmed the new IMF application, insisting that the decision to scrap the ninth review was due to time constraints rather than unmet targets.
Mbadi denied reports of a rift with the IMF, asserting that $800 million in unused funds from the current programme could be rolled into the new arrangement. However, Bloomberg reported last week that Kenya walked away after failing to meet fiscal deficit and revenue collection benchmarks—a claim Mbadi dismissed as “inaccurate.”
The abrupt shift has rattled investors, with Kenya’s dollar bonds initially dipping before recovering slightly. The 2048 maturity fell to a six-month low before stabilising around 80 cents.
The IMF has yet to disclose details of the new programme but said talks would proceed “in due course.”
Analysts say the government’s ability to secure fresh funding hinges on reforms in the upcoming 2025 Finance Bill, which faces stiff public opposition after last year’s deadly tax protests.
The Treasury plans to reduce foreign borrowing to 18 per cent of total debt in the next fiscal year, relying instead on domestic markets and reserve buffers. S&P noted Kenya’s $10 billion in foreign exchange reserves could provide short-term relief but warned that commercial borrowing would come at “a much higher cost.”
The World Bank loan, tied to legislative reforms like a pending conflict-of-interest bill, remains uncertain. Mbadi insisted the funding was independent of IMF approval, but S&P’s assessment suggests otherwise. Meanwhile, the UAE’s $1.5 billion commitment—part of a broader infrastructure deal—now faces delays, further squeezing Nairobi’s financing options.
Last month, Kenya restructured part of its Eurobond debt, using $950 million (Ksh123 billion in the current exchange rates) to retire expensive syndicated loans. The Treasury has projected a budget deficit of 4.9 per cent of GDP this year, narrowing to 4.3 per cent in 2025.
Yet scepticism persists, with economists questioning whether revenue-raising measures can offset spending pressures.
