Kenya’s long-standing financial cushion from Washington has hit a significant freeze. For the first time since the onset of the COVID-19 pandemic, the World Bank and the International Monetary Fund (IMF) have largely paused their coordinated disbursements to Nairobi, signaling a new era of “hardball” diplomacy over stalled structural reforms.
While the two lenders acted as a lifeline for the Kenyan economy for five years, 2025 has been defined by a stark withdrawal. The fallout began in March when the IMF terminated its 2021 multi-year funding deal, effectively walking away from a $850.9 million (Sh109.7 billion) commitment. The World Bank followed suit in June, freezing a $750 million (Sh96.7 billion) loan under its Development Policy Operation (DPO).
The Compliance Gap
The “taps-off” approach follows a series of missed performance targets. Investigations reveal that Nairobi failed to satisfy 11 out of 16 conditions set by the IMF. Key points of contention included:
- Kenya Airways (KQ): Failure to complete the promised restructuring of the national carrier.
- Fuel Stabilization Fund: Misuse of funds intended for fuel subsidies, which were redirected to other government spending.
- Fiscal Discipline: Shortfalls in tax collection and delays in settling debts to local suppliers.
Despite the recent passage of the Conflict-of-Interest Act 2025—a major anti-graft law meant to curb public officials’ business dealings—the World Bank insists that 11 other hurdles remain. These include legal amendments to the Competition Act, the implementation of a Treasury Single Account (TSA), and new regulations for forest conservation and social protection.
Treasury’s Tactical Pivot
National Treasury Cabinet Secretary John Mbadi has attempted to downplay the impact of the freeze, characterizing the omission of IMF funds from the 2025/26 budget as a “calculated move” to reduce dependency.
“We did not factor in any IMF funding for this financial year,” Mbadi stated during a recent briefing. “The IMF’s responsibility is not just to give loans, but to stabilize economies. We should avoid taking loans from the Fund; it should be there for peer review and investor confidence.”
However, behind the scenes, the government is racing to unlock the World Bank’s $750 million DPO facility. While the bank has pointed toward a March 2026 timeline for disbursement, the Treasury is pushing for an earlier release to plug a growing budget deficit, currently projected at 5.4% of GDP.
New Friction: The Shilling and “Hidden” Debt
The relationship has been further strained by technical bickering over macroeconomic policy. The IMF recently expressed skepticism over the Kenya Shilling’s “artificial” stability. Despite global shifts, the local unit has remained tightly ranged between Sh128.90 and Sh130 against the dollar, prompting IMF surveillance into whether the Central Bank is intervening too heavily.
Additionally, a dispute has emerged over securitized debt. The IMF wants revenue-backed loans—such as those linked to the Road Maintenance Levy—classified as sovereign debt. The Kenyan government resists this, arguing these are managed under Special Purpose Vehicles (SPVs) to keep them off the main balance sheet.
The Road Ahead
As 2025 draws to a close, Kenya finds itself at a crossroads. Some advisors, including David Ndii, Chairman of the Presidential Council of Economic Advisors, suggest that outgrowing the IMF is a sign of economic maturity.
“Our goal is to transition to an upper-middle-income country,” Ndii noted. “Part of that means being more market-facing than seeking multilateral financing.”
Market analysts, however, warn that without the “seal of approval” that comes with IMF and World Bank programs, Kenya may face higher interest rates from private international lenders who view the current reform deadlock as a risk to fiscal credibility.
