State faces new IMF test as loan talks resume

National Treasury building in Nairobi. Previous attempts to implement IMF-backed revenue measures, including tax hikes in the 2024 Finance Bill, sparked deadly protests. [File, Standard]

The International Monetary Fund (IMF) is set to dispatch its top officials to Kenya in January, aiming to break a deadlock over a new financial bailout. This is a critical test for President William Ruto’s administration as it faces mounting public unrest over unmet economic promises and a dwindling tax base.

The forthcoming visit, confirmed by State officials and the IMF, follows stalled talks in late 2025 and will determine the fate of a crucial funding programme seen as essential for stabilising the government’s strained public finances.

Analysts say the negotiations have arrived at a crucial political moment for the government.

Its “Bottom-Up” economic model, a core pledge to voters which propelled the Kenya Kwanza administration to power in 2022, has yet to fully deliver the widespread job creation and relief from high living costs that many Kenyans expected, analysts say. 

With the next general election now less than two years away, public patience is wearing thin, amplifying the stakes of the IMF talks according to observers. “The IMF mission is an acid test for the government’s credibility,” said Ian Njoroge, an independent economist in Nairobi.

“A deal would provide a financial buffer, but the conditions will be politically painful. No deal risks a full-blown fiscal crisis, which would be even worse for the electorate.”

The government, acknowledging the pressure, recently unveiled a draft budget for the 2026-27 fiscal year—its penultimate before the polls—that seeks to advance Ruto’s flagship housing, agriculture, and healthcare pledges. 

However, the Sh4.73 trillion spending plan, a near 10 per cent increase, is constrained by falling tax revenues, forcing the Treasury to project a larger fiscal deficit and increased borrowing.

This fiscal tightrope directly conflicts with earlier IMF advice. Fund officials have consistently urged Nairobi to expand its tax base and rein in spending to ensure debt sustainability—a tough prescription on the eve of an election cycle where populist spending is often the norm.

Previous attempts to implement IMF-backed revenue measures, including tax hikes in the 2024 Finance Bill, sparked deadly, youth-led protests nationwide, forcing the Ruto government to withdraw the legislation. 

“The authorities are trying to balance two imperatives: showing the IMF a path to fiscal consolidation while demonstrating to voters that their lives are improving,” added Njoroge.

“The budget tries to walk this line, but the IMF will want more concrete, binding commitments.” Key points in the upcoming talks include the classification of billions of dollars in off-budget debt, such as securitised loans for infrastructure, and concerns from IMF officials about the management of the shilling.