Kenya and International Monetary Fund (IMF) have agreed to discuss a new lending programme and abandon the current one, the ninth review of the country’s $3.6 billion Extended Fund Facility (EFF) and Extended Credit Facility (ECF) programmes.

Officials of the Bretton Woods institution said Kenya has formally requested a new loan programme, shifting the nature of their financial arrangement and opening a new chapter of negotiations.

 “The IMF has received a formal request for a new programme from the Kenyan authorities and will engage with them going forward,” Haimanot Teferra, the IMF’s mission chief, said in a statement issued at the end of a visit to Nairobi.

The team visited Nairobi from March 6 to 14, 2025, engaging with government officials, including President William Ruto, Treasury Cabinet Secretary John Mbadi, and Central Bank Governor Kamau Thugge.  Following the visit, the IMF team confirmed that the ninth review would not proceed and that discussions would now focus on the terms of a new loan programme requested by Kenya.

The decision to scrap the review, which was expected to assess Kenya’s compliance with agreed economic reforms, shows the challenges Nairobi faces in managing its debt and economic stability.

The review was set to evaluate key areas like debt management, revenue collection, and government spending.

This follows increasing scrutiny from the IMF. In October 2024, during the combined seventh and eighth reviews, Kenya secured only $606 million instead of the anticipated $874 million. The lower disbursement reflected concerns about the country’s economic vulnerability, pushing for more stringent fiscal policies.

Of this amount, $485.8 million was allocated to the EFF/ECF arrangements to support debt sustainability and governance, while $120.3 million came from the Resilience and Sustainability Facility (RSF) to address climate-related challenges. Kenya witnessed widespread protests on June 25 against a Finance Bill which was meant to increase revenue to reduce the budget deficit and fund development projects.

The Fund had supported the move as part of the fiscal consolidation measures tied to its agreement. However, strong public opposition forced its withdrawal, raising questions about how the government would meet its financial obligations.

Despite these challenges, the IMF maintains that Kenya’s economy remains resilient, with growth above the regional average.  IMF First Deputy Managing Director Gita Gopinath has acknowledged that inflation is slowing and external inflows are strengthening the local currency while building external financial buffers.

External inflows

“Kenya’s economy remains resilient, with growth above the regional average, inflation decelerating, and external inflows supporting the shilling and a build-up of external buffers, despite a difficult socio-economic environment,” she said. However, the political and economic environment remains uncertain.

The State’s engagement with the IMF has been a contentious issue, with critics arguing that IMF-backed policies often lead to higher taxes and reduced public spending.  The withdrawal of the Finance Bill in July 2024, despite IMF support, highlights the delicate balance between meeting lender demands and addressing public discontent.

Another concern is Kenya’s external debt, particularly its $6.3 billion bilateral loan obligations to China, which account for 17 per cent of the country’s total external debt. Costly syndicated loans have also strained repayment capacity.

However, multilateral lenders such as the World Bank continue to provide concessional loans that help ease immediate financial distress. Earlier this year, Kenya raised $1.5 billion through an international bond to address its $2 billion Eurobond repayment in June 2024, temporarily reducing external debt pressure.

Kenya’s shift away from the EFF and ECF programmes signals a broader trend among African nations relying on domestic markets to avoid external shocks.

While long-term Treasury Bonds have provided stability, the government’s increasing reliance on short-term debt instruments, such as Treasury Bills, raises liquidity risks.  If investor confidence declines or inflationary pressures persist, the cost of borrowing could skyrocket, putting additional strain on public finances.

Economists further warn that excessive dependence on short-term debt has historically led to liquidity crises when market conditions deteriorate. Countries that have relied too heavily on such instruments often struggle with refinancing challenges, especially in uncertain economic environments.

The IMF’s debt sustainability analysis highlights Kenya’s vulnerability to external shocks, compounded by governance weaknesses in major projects like the Standard Gauge Railway.

Kenya’s economic future hinges on its ability to negotiate favourable terms with the IMF for the new loan program while managing public expectations.

The balancing act between fiscal responsibility and social stability will be crucial as the country navigates these financial headwinds.

The coming months will determine whether Kenya can steer itself toward a sustainable economic path or whether it will face deeper financial turmoil.