Ruto's re-election bid caught between IMF's tough conditions and Kenyans pleading for relief

Kenya and the International Monetary Fund (IMF) are locked in a standoff over a new financing programme, with the Fund reluctant to sign a deal month to a General Election.

Kenya submitted its request for a new programme to the IMF in March last year after abandoning the previous Extended Credit Facility signed in April 2021, when it failed to meet key conditions. Discussions have progressed only through preliminary talks.

The IMF has remained tight-lipped over what exactly is stalling the talks, even as Kenyan officials publicly show keenness to have a new programme in place. Central Bank of Kenya (CBK) Governor Kamau Thugge has often exuded confidence that the talks would be concluded soon, a prediction that has yet to materialise.

Concerns are mounting that the Fund may be deliberately stalling, wary that any deal signed now could be undone or renegotiated if a new government takes power after the 2027 presidential election. The IMF did not respond immediately to The Standard requests for comment by press time.

Ruto’s administration is approaching the end of its first term, and the Fund's hesitation reflects a well-documented pattern, analysts say, where the IMF has historically avoided locking in agreements with governments facing imminent elections.

The IMF's own internal evaluations acknowledge that "upcoming elections significantly hurt the implementation" of loan programmes. In exceptional access programmes with elections on the horizon, only 52 per cent were completed or largely implemented, compared to 75 per cent for programmes without elections.

Political scientists note that "new governments are more likely to invest political capital into an IMF programme than governments later in their term." A leader facing voters in months has little appetite for the tax hikes and subsidy cuts the Fund demands, and even less capacity to deliver them if the public revolts.

The Fund has learned this lesson repeatedly. In Greece, the IMF suspended talks ahead of the June 2012 snap election, refusing to negotiate with a caretaker administration that had "limited tenure and no guarantee of parliamentary support." The result was Syriza's anti-austerity victory and a renegotiated bailout. The IMF's own research found that "programme implementation rates with political assurances were broadly similar to, if not slightly worse, than those without political assurances."

The standoff places Ruto in an increasingly precarious position, facing voters with mounting economic grievances and must reconcile the IMF's demands for higher tax collections, fiscal consolidation and sweeping reforms with growing public appetite for relief.

In the coming months, Ruto is expected to court voters with measures the Fund may not approve, including continued fuel subsidies and a reluctance to introduce new taxes. Such moves could strain relations with the lender at a time when Kenya is already cut off from a crucial funding line.

Kenya entered the $3.6 billion IMF programme in April 2021, with disbursements tied to conditions aimed at streamlining government operations. The programme was terminated this year after Kenya missed key targets, forcing the country to rely on expensive commercial debt, including high-yield Eurobonds.

The IMF had required Kenya to restore fiscal discipline, stabilise debt and strengthen governance. Specifically, Nairobi was to grow tax revenues, prioritise concessional debt over commercial loans, undertake parastatal reforms including the financial restructuring of Kenya Power and Kenya Airways, and bolster anti-corruption measures.

It was against this backdrop that Kenya hiked VAT on petrol to 16 per cent in 2023, later revised to 8 per cent this year following a surge in prices after the US attack on Iran earlier this year. The government has also sought, unsuccessfully, to withdraw fuel subsidies.

The Fund's reluctance to deal with governments in electioneering years is not unique to Kenya. Analysts note that the IMF has historically avoided locking in agreements with governments whose electoral prospects are uncertain.

For Ruto, an IMF lockout would mean more than a stalled programme, it would send a signal that Kenya is uninvestable, analysts say.

The Fund is the lender of last resort. When it opens its taps, other creditors read that as a seal of approval: the country has agreed to reforms, the books have been examined, and the risk of default is containable. When it holds back, the opposite message travels fast.

The IMF's own research describes this as the "catalytic effect" a programme is supposed to unlock other financing by signalling that a country has adopted sound policies. The Fund's involvement "can help unlock other financing, acting as a catalyst for other lenders."

For Kenya, the stakes are acute. The country has been locked out of cheaper concessional financing since 2014, when it graduated to lower-middle-income status and lost access to World Bank and IMF concessional windows. It has since relied on Eurobonds expensive commercial debt that must be repaid in large bullet payments.

Without an IMF programme, that pipeline narrows further. The previous $3.6 billion programme expired in April 2025, and Kenya has been servicing its debts without the Fund's oversight or its money. The National Treasury's own debt report shows Kenya is pushing alternative financing structures securitising road levy revenue for a Sh175 billion bond, pledging railway development levy receipts as mainstream external financing remain constrained.

This has left Kenya in a limbo familiar to other election-year borrowers, too risky for the Fund to commit, too exposed for private creditors to fill the gap.

The IMF's conditions were among the grievances cited in anti-government protests in June 2024, when demonstrators rejected what they called punitive tax measures proposed in the Finance Bill 2024, which was eventually withdrawn. While the government has initiated reforms in some areas, many remain pending.

Despite his reliance on IMF credit, Ruto has been an outspoken critic of the global financial system. He has argued that institutions like the IMF created at the 1944 Bretton Woods conference to stabilise the post-war economy were designed for a bygone era and need overhauling to address 21st-century challenges.

At last month's UN General Assembly, Ruto said an unfair global financial system had turned public debt in developing countries into a children's rights issue, with interest payments crowding out investment in classrooms, healthcare and social protection.

“I have consistently argued that the global financial system must become fairer, more responsive and more inclusive," Ruto said at a UNICEF-hosted event on the sidelines of UNGA.

Real reform, Ruto said, would give every country an equal chance to finance growth, create jobs and build a resilient future, calling it a shared responsibility grounded in fairness and mutual prosperity.

"Budget discipline is necessary. But debt sustainability is also a moral responsibility. We must measure national solvency not only by balance sheets, but also by the health, safety and education of the next generation," he said.

To cope with the absence of the IMF facilities, as well as hostilities in the external debt market, Treasury has increased borrowing in the domestic market.

Domestic debt, according to latest data by Treasury stood at Sh7.46 trillion as of July this or 56.5 per cent of the total public debt which stood at Sh13.22 trillion. External debt stood at Sh5.77 trillion, accounting for 43.6 per cent of public debt.

This is a drastic departure from the past where external debt had always accounted for more than 50 per cent of total debt.

In September 2023, domestic debt accounted for 46.4 per cent of total debt while external debt was at 53.6 per cent. As the government increased borrowing locally, this started to change and domestic debt stood at 51.9 per cent of total debt as of September last year while external debt was at 49.8 per cent.

In its Medium Term Debt Strategy, Treasury said it plans to increase borrowing from domestic sources to 75 per cent and reduce borrowing from foreign lenders to 25 per cent.

Despite concerns about the impact that this might have on lending to the private sector as banks lend to the government, Treasury officials have in the past explained that external sources have been shrinking, partly on account of policy pronouncements by major economies. In instances where credit by international lenders is available, it was at a high cost.

Over the year to June 2026, the government borrowed Sh1.3 trillion to fund the Sh4.48 trillion budget. Treasury documents show that the government failed to meet the tax revenue collection target of Sh3.29 trillion and instead collected Sh3.22 trillion, which meant that it run a bigger than expected deficit.

“The 2025/26 financial year fiscal outturn confirms that Kenya continues to operate within a constrained fiscal environment, with revenue falling below target and the fiscal deficit remaining elevated at 6.8 percent of GDP,” said Treasury in the draft Budget and Review Outlook Paper (Brop).

“The outcome reinforces the need to sustain fiscal consolidation while safeguarding economic recovery and essential public services. The Government will therefore continue to strengthen domestic revenue mobilisation, enhance expenditure efficiency, manage fiscal risks and advance public financial and debt management reforms to restore fiscal space and safeguard debt sustainability.”