Kenya has not included funding from the International Monetary Fund (IMF) in the budget for the year starting July, dodging the painful aid conditions such as higher taxes, job freezes and spending cuts associated with the multilateral lender.
Budget documents tabled in Parliament indicate zero funding from the IMF in the four years to June 2029 compared to Sh50.2 billion set for the 2024/25 financial year and Sh135.1 billion received in the 2023/24 period.
This emerges in a period when Kenya will deepen its reliance on the World Bank, forecasting to tap loans worth Sh170.5 billion for every fiscal year over the next four budget cycles from Sh129.8 billion in the current period.
The IMF had set painful conditions in the wake of its surging loans post Covid-19 pandemic, including the requirement to increase tax revenues, cut budget deficits and restructure State-owned enterprises.
World Bank loans, which tend to be long-term, often carry less stringent conditions when compared to the IMF’s, which are short to medium-term and tackle immediate economic instability.
The lack of IMF funding in the budget coincided with a budget proposal that has not imposed new major taxes or increased existing ones, in what is seen as a reaction to the deadly protests broke out last year against the government’s measures to raise revenue.
More than 50 people were killed when the youth-led protests broke out last June, forcing President William Ruto to abandon tax hikes worth Sh346 billion, and causing a delay to funding from the IMF—which had pushed for higher revenues.
“Looking at the Finance Bill this year, it is more on tax administration and trying to seal the loopholes while removing ambiguities and making tax collection efficient,” Treasury Cabinet Secretary John Mbadi said last week.
“In terms of additional revenue collection, we are not collecting much. This could be a record year where we are not collecting much from tax measures. The estimate is in the region of Sh25 billion to Sh30 billion.”
Kenya is now expected to lean on cheap financing from the World Bank over the next few years as funding from the IMF dries up in the absence of a new programme.
Fresh budget documents from the Treasury, submitted to the National Assembly last week, show that Kenya expects to remain in the Word Bank’s development policy operations (DPO) until at least the end of the 2028/29 financial year.
For each of the fiscal cycles, Kenya expects to receive a total of Sh682 billion in equal parts, beginning with Sh170.5 billion in the year starting July 1.
Kenya’s last programme with the IMF lapsed prematurely after the country failed to honour key conditions for funding agreed with the lender, including the restructuring of national carrier Kenya Airways (KQ) and a review of billions of shillings collected from fuel levies.
The costly break-up of the programme, which was inked in April 2021, saw Kenya miss out on Sh110 billion ($850.9 million) in IMF funding from the ninth and final reviews of the special programmes that was expected last month.
The World Bank is expected to remain the key source of cheap or concessional financing for the country over the medium term, which will be supported by smaller financing from the African Development Bank (AfDB).
Kenya hopes to receive Sh97.08 billion ($750 million) from the World Bank DPO before the end of June 2025, plugging in the external financing gap following the termination of IMF funding.
The World Bank funding is pegged on MPs adopting the advisory of President William Ruto who referred the Conflict of Interest Bill, 2025 back to Parliament after he deemed the adopted version watered down.
The legislation, which is a precondition for further disbursements from the World Bank, seeks to curb conflict of interest in government.
“We have largely met the prior conditions, and the ones that haven’t been met, we are working to ensure they are resolved by the second week of May. We have met the director of our region and have been assured that by the third week of May, we could have a board meeting,” Mr Mbadi said in an interview last month.
The Treasury Cabinet Secretary further said that the exchequer did not price in any fresh disbursements from the IMF, pending clarity on the possibility of a new funded programme in the medium term.
Central Bank of Kenya (CBK) Governor Kamau Thugge said Kenya was hoping to unlock new financing from the IMF by presenting a credible fiscal consolidation plan.
“The IMF would obviously want to see what is included in the budget. What kind of expenditure measures are in the budget, the kind of fiscal consolidation and revenue measures included,” Dr Thugge said in an April interview.
Despite recent notable disbursements from the IMF, the World Bank accounts for the largest share of the multilateral debt.
World Bank loans stood at Sh1.52 trillion at the end of December 2024 while that of IMF was Sh420.5 billion, which has grown fourfold since 2020.
The two multilateral lenders accounted for 38.8 percent of Kenya’s total external debt of Sh5 trillion at the end of December 2024.
The World Bank and the IMF have gained a bigger say in government policy after Kenya turned to the multilateral institutions for concessional loans after the Covid-19 pandemic ravaged Kenya’s revenues and limited access to commercial loan markets.
Previously Kenya had kept away from direct budget funding from institutions like the IMF during former President Mwai Kibaki’s administration, with most of the funding coming in the form of project support.
The multilateral loans come with conditions for the government to observe discipline and raise more taxes, cut expenditure and narrow the deficit.
