PREVIEW
Treasury targets a 5.5% deficit and $1.9bn of net external financing while pursuing cheaper debt across Chinese, Japanese and US channels
Differences over strategy to raise US$5.4 billion in external finance over the next year are widening across President William Ruto’s economic policy team ahead of a new round of talks with the IMF on a new loan programme in the coming weeks.
Central Bank of Kenya (CBK) Governor Kamau Thugge told journalists on 12 August, that an IMF mission is expected shortly in Nairobi for Article IV consultations, which review economic performance and policy direction. Classified by the IMF as an economy in high risk of debt distress, Kenya’s plan is to use the prevailing borrowing costs and tighter credit spreads to retire or refinance its debts.
Ruto’s chief economic advisor David Ndii is among the group favouring raising more finance in China. A borrowing plan released by the Treasury in Nairobi refers to raising an inaugural $300 million panda bond on China’s domestic debt market, some $500m in Samurai bonds from the Japanese market and a $815m Eurobond in Q2 of the financial year. It is also planning to go ahead with a $1bn debt-for-food security swap with the United States Development Finance Corporation.
Treasury Cabinet Secretary John Mbadi has led the camp wanting to reach a new arrangement with the fund. The government prematurely ended its $3.6bn loan programme with the IMF in February 2025 (AC Vol 66 No 8, Ruto’s fiscal gamble – can he break the debt trap by 2027?). The Extended Credit Facility and Extended Fund Facility had disbursed over $3.1bn to the Treasury. Ending the programme early forfeited around $480m.
Ratings agencies said Secretary Mbadi’s early ending of the Fund programme was due to Kenya’s failure to meet revenue and budget deficit targets (Dispatches, 6/11/24, IMF grants latest tranche of $600m but warns of ‘difficult balancing act’). Ministers had initially hoped to secure a fresh IMF programme by July, but the government’s persistently high budget deficits and long-standing IMF concerns about corruption have slowed progress.
In June, the Fund confirmed that it had shared a diagnostic report on governance and corruption with Nairobi. We hear that talks on a new loan programme cannot not move forward until the government has formally responded to it.
The Treasury ran a 5.8% deficit in 2024/25 which is set to increase to 6.2% for the 2025/26 fiscal year which ended in June, before falling to a projected 5.5% next year. The IMF is likely to call for tougher action.
But Kenya’s middle class is already struggling to cope with the latest round of taxes this year. That leaves the government with the task of explaining swingeing spending cuts to a core constituency in an election year.
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