Why IMF is demanding corruption audit on Kenya

Treasury CS John Mbadi and PS Chris Kiptoo lead the Kenyan delegation in a meeting with the IMF team led by Director of the Fiscal Affairs Department Vitor Gaspar and Director of the Legal Department Yan Liu in the US. [Courtesy] Kenya's quest for billions in crucial financing from the International Monetary Fund (IMF) now hinges on its commitment to tackle endemic corruption, as the global lender has stressed good governance as a fundamental requirement for future disbursements. This shift follows a two-week "Governance Diagnostic" mission led by Deputy Division Chief in the Fiscal Affairs Department, Rebecca A. Sparkman, which concluded on June 30. The extensive diagnostic has paved the way for a roadmap for William Ruto's government to combat graft if it aims to unlock substantial IMF funds. The multi-departmental IMF team, in collaboration with World Bank staff, assessed corruption vulnerabilities across key state functions, including public financial management, procurement, tax administration, the mining sector, market regulation, and the governance of the Central Bank. IMF said the team engaged extensively with government officials, anti-corruption institutions, civil society, the private sector, and members of the National Assembly, striving for a comprehensive understanding of Kenya's institutional weaknesses. According to an IMF briefing seen by The Standard, the findings of the mission, expected in a draft report by the end of 2025, will present "specific, sequenced recommendations and reform priorities." These recommendations are likely to become critical conditions for any future IMF loan programme, linking financial assistance directly to demonstrable progress in anti-corruption efforts. Kenya, grappling with ongoing fiscal pressures and a significant public debt burden, has frequently relied on IMF support. However, widespread protests against proposed tax hikes, which led to the withdrawal of the Finance Bill, 2024 and stalled a previous IMF review, have underscored deep public distrust fueled by perceptions of rampant corruption and mismanagement. Central Bank of Kenya (CBK) Governor Kamau Thugge last month confirmed Kenya is in talks with the IMF on a new deal. Speaking at a post-Monetary Policy Committee briefing last month, Thugge said further talks are set for September. "We are indeed having discussions with the IMF, and the government did send a letter to the IMF requesting to negotiate a new arrangement," said Thugge. "We are expecting an IMF team to come in September to start discussions on the Article IV consultation," he said. The IMF is expected to set new, stringent conditions for Kenya, requiring the country to meet specific revenue and spending targets before unlocking new funding, as well as fight corruption. Advocacy groups such as Human Rights Watch have urged the IMF to ensure its support aligns with human rights principles, safeguarding against the diversion of funds through graft. Analysts suggest that demonstrating tangible progress in combating corruption will be crucial for unlocking future IMF financing. The Ruto regime is poised to initiate a comprehensive corruption audit across all ministries and public institutions, as confirmed by Prime Cabinet Secretary Musalia Mudavadi. "The government has formally engaged the IMF to conduct a thorough governance and corruption diagnosis across all ministries and public institutions," Mudavadi said, underscoring a proactive response to the IMF's concerns. He emphasised that this initiative reflects President Ruto's "unwavering resolve to eradicate graft and protect the economy and livelihoods of Kenyans." The IMF has previously confirmed that concerns over governance are at the heart of delays in disbursing funds to the Kenyan government under its financial programme. Corruption has long been a significant barrier for the IMF in releasing funds to Kenya. Despite prior discussions, the Fund has refrained from announcing new funding, urging Kenyan authorities instead to undertake these diagnostics. "While governance reforms can take time, promoting good governance is essential to our engagement with Kenyan authorities," IMF Communications Department Director Julie Kozack reiterated, highlighting the critical nature of this issue for the Fund. This will be a fresh test for President Ruto, who has faced mounting pressure to deliver on economic promises amid rising discontent. The lack of immediate financial assistance underscores the IMF's stance that new policies are a prerequisite for any future funding, experts said yesterday. Kenyans have previously raised concerns about such heavy borrowing, saying it has done little to improve their lives. Kenya's public debt was a record Sh11.36 trillion in March 2025. Ordinary Kenyans are preparing for the financial impact of new tax measures as the Kenya Revenue Authority (KRA) begins implementing revised collection targets. This follows President William Ruto's signing of the Finance Bill 2025 into law. The move comes amid increasing public discontent over a slowing economy and persistent challenges in job creation. The National Treasury last month unveiled a new budget for the year started July 1, amid pressure to explore alternatives for economic support amid strained tax collections, looming debt repayments, and economic headwinds. Kenya's total expenditure in the 2025-26 financial year is projected at Sh4.291.9 trillion equivalent to 22.3 per cent of GDP. The resultant fiscal deficit, including grants, is projected at Sh923.2 billion (4.8 per cent of GDP), to be financed by a mix of external and domestic borrowing. National Treasury Cabinet Secretary John Mbadi, while making his budget speech, highlighted fiscal constraints including rising demands for public spending, public debt accumulation, and the challenge of mobilizing higher tax revenues while maintaining a low cost of doing business. "These constraints are interlinked, and addressing them effectively require strategic planning, fiscal discipline, and a commitment to long-term sustainability," Mbadi stated in his budget address, emphasising a fiscal consolidation plan to slow debt growth while protecting service delivery. The National Treasury plans liability management operations and a continued pursuit of concessional loans, while exploring new funding instruments such as debt swaps and diaspora bonds.

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