Ruto's budget limbo deepens as IMF digs in on bailout conditions

President William Ruto and International Monetary Fund Managing Director Kristalina Georgieva at State House, Nairobi, on May 13, 2026. [Courtesy]

The government’s fiscal planning has entered a precarious holding pattern after talks between President William Ruto and International Monetary Fund Managing Director Kristalina Georgieva ended without a breakthrough.

This is after the Fund insisted on politically and socially sensitive reforms 15 months before next year's general election. 

Yet even as no new programme materialised, Georgieva used her recent Nairobi visit to send a deliberate signal, one that markets understand all too well. 

“Terrific meeting with President @WilliamsRuto in Nairobi,” Georgieva posted on X after their encounter on the sidelines of the just-concluded inaugural Africa Forward Summit.

“I congratulated him on co-hosting the important #AfricaForward Summit. We discussed the reforms needed to unlock more private investment across Africa, as well as progress on Kenya's own reforms and continued Fund support.” 

In a separate post, she added: “Grateful to meet with Kenyan civil society leaders in Nairobi. Their policy expertise and engagement make a big contribution to Kenya's progress for the benefit of all Kenyans. The Fund remains committed to helping strengthen governance and promoting inclusive growth.” 

The carefully worded statements – warm but devoid of any commitment to new disbursements – underscored the IMF’s unique power as the world’s lender of last resort. For emerging economies like Kenya, securing an IMF programme is rarely just about the money, analysts say.  

It is seen as a stamp of policy credibility, a signal that reduces perceived default risk and unlocks a cascade of other financing. That signal is currently absent. 

When a country faces a balance-of-payments crisis, an IMF agreement tells global investors three things, according to experts. 

One, the government is committed to fiscal discipline and structural reforms, and two, the Fund’s financial backing provides immediate liquidity to stabilise the currency and meet external obligations.

Thirdly, that backing often catalyses additional funding from other multilateral lenders, regional banks, and private capital. 

Without that seal of approval, Kenya’s access to international capital markets remains constrained, analysts say. 

Eurobond yields have climbed across maturities, and the shilling has come under periodic pressure despite the Central Bank of Kenya (CBK) interventions. 

The timing could hardly be worse. A prolonged funding freeze leaves government finances exposed to external shocks, notably the US-Israel-Iran impasse, which has disrupted Red Sea shipping and pushed Murban crude oil to $94.84 per barrel as of May 14, up from $89.13 a week earlier. 

Kenya’s foreign exchange buffers have, however, proved more resilient than feared. According to the Central Bank of Kenya’s (CBK) Weekly Bulletin for the week ending May 14, usable reserves stood at $13.507 billion (Sh1.9 trillion), equivalent to 5.7 months of import cover – well above the statutory minimum of four months. 

That marks a recovery from late April, when reserves had dipped to $13.226 billion (Sh1.8 trillion) after the CBK burnt through nearly $800 million (Sh108 billion) defending the shilling following the Strait of Hormuz disruption. The CBK has since replenished its war chest, aided by diaspora remittances and the Kenya Pipeline Company privatisation proceeds. 

Still, analysts caution that reserve strength is partly seasonal and tied to one-off inflows rather than structural export growth. Meanwhile, remittances – a key source of dollar liquidity – fell 11.7 per cent month-on-month in April to $397.8 million (Sh54.1 billion), though the 12‑month cumulative total rose 1.1 per cent to $5.05 billion (Sh686.5 billion). 

With presidential elections scheduled for August 2027, Ruto’s administration is wary of the political costs of IMF prescriptions.

Previous attempts to raise taxes under the 2024 Finance Bill triggered deadly nationwide protests, forcing the government to withdraw the legislation. 

The IMF has made clear that any new programme would require a “credible fiscal consolidation path", a phrase that in practice means higher value-added tax, reduced subsidies, and restructuring of loss-making state enterprises like Kenya Airways and Kenya Power. 

Those demands collide with a grim domestic reality. Inflation jumped to 5.6 per cent in April, a two-year high, driven by food and fuel costs.

A kilo of tomatoes now costs Sh108.60, up 32.6 per cent from a year ago. Diesel and petrol prices have risen to record prices, triggering the threat of second-round inflation.  

The Kenya Revenue Authority (KRA) collected Sh84 billion less than planned in the first nine months of the fiscal year, leaving a daunting Sh932 billion to raise in the final three months – a target analysts view as nearly impossible without aggressive new measures that the government has ruled out. 

With IMF lending off the table, Ruto has turned to regional lenders. The African Export-Import Bank (Afreximbank) has stepped in with emergency funding under its $10 billion (Sh1.4 trillion) Gulf Crisis Response Programme.

Afreximbank Vice President Denys Denya confirmed that Kenya, Ethiopia, and Tanzania have already taken up the facility, though amounts were not disclosed. 

The government also raised Sh103.45 billion from selling a 65 per cent stake in Kenya Pipeline Company – the country’s first major initial public offering (IPO) in two decades – and expects another Sh244 billion from selling a 15 per cent stake in Safaricom to South Africa’s Vodacom Group. But analysts note that both are one-off revenues, not recurring budget support. 

“Privatisation proceeds are one-off revenues. You cannot run a government on one-off revenues,” said Ian Njoroge, an independent economist. “And 18 months is not enough to prepare and sell another KPC.” 

The National Treasury had indicated it expects clarity by June or July on whether the IMF will agree to a funded programme. But many analysts are sceptical.