Kenya to wait until New Year for IMF bailout decision as talks stall

CBK Governor Dr Kamau Thugge during the launch of the Chora Plan financial literacy campaign. [Wilberforce Okwiri, Standard]

Kenya will wait until at least early next year to learn the fate of a new International Monetary Fund (IMF) bailout, after critical negotiations stalled over currency manipulation concerns and the classification of billions in securitised loans.

Central Bank of Kenya (CBK) Governor Kamau Thugge said on Wednesday the new timeline was announced following a recent meeting between President William Ruto and IMF Managing Director Kristalina Georgieva in Washington, DC, which both sides described as focused on deepening collaboration.  

An IMF team is now expected to return to Nairobi in January to continue discussions, Dr Thugge said. 

"We continue to have discussions with the IMF on getting ... a new funded programme. We do expect a staff visit from the IMF sometime in January, to continue the discussions," he said at a virtual post-Monetary Policy Committee press conference with journalists in Nairobi.

The delay confirms a significant setback after an IMF team left Nairobi last month without a staff-level agreement, prolonging the wait for a crucial financial lifeline for the Kenya Kwanza government that is grappling with mounting debt pressures. 

The negotiations have been complicated by IMF concerns over the stability of the Kenyan shilling, which officials have questioned as "too stable," suggesting it may interfere with monetary policy transmission and inflation targeting, according to public comments by a senior Kenyan official recently. 

Yesterday, Dr Thugge insisted that the CBK maintains a free-floating currency regime and only intervenes where necessary.  

CBK has consistently denied manipulating the currency, arguing the shilling's rate is market-driven. 

A second major hurdle is how to classify billions of dollars in securitised loans, including a $3.5 billion (Sh452.55 billion) conversion of Chinese railway debt from dollars to yuan earlier this year.

The IMF has acknowledged Kenya's "pioneering approach" to debt management but stresses the need for transparency and assessing risks that such instruments may circumvent parliamentary scrutiny. 

The meeting between President Ruto and Georgieva aimed to reset talks. A statement from Ruto’s office said they discussed "expanding avenues of collaboration" and forging a partnership "grounded in transparency, mutual understanding, and a shared commitment to sound economic governance." 

This follows the abrupt termination of Kenya's previous $2.3 billion (Sh297.37 billion) IMF programme earlier this year due to missed targets, which cost the country Sh110 billion in undisbursed funds. 

The government is under acute fiscal strain, with public debt now at Sh12 trillion as of September this year and revenue collections consistently falling short.  

Any new IMF programme is expected to come with stringent conditions on spending, taxes, and reforms to state-owned enterprises. 

Such conditions are politically sensitive, with only a year remaining until the next General Election. 

The IMF-backed tax hikes in a since-withdrawn finance bill in 2024 sparked deadly, youth-led protests across the country. 

Abebe Aemro Selassie, director of the IMF's African Department, recently told The Standard that discussions were ongoing to understand the government's reform plans.

With the next mission now scheduled for January, Kenya faces continued economic uncertainty as it seeks a deal to stabilise its finances.