Inside William Ruto-IMF fallout

President William Ruto addresses Rarieda residents during the thanksgiving ceremony of Health PS Ouma Oluga in Siaya County, on March 8, 2026. [Rodgers Otiso, Standard] 

President William Ruto's government is resisting International Monetary Fund (IMF) demands for a painful debt restructuring, sources familiar with the negotiations told The Financial Standard, setting the stage for a high-stakes confrontation with the global lender of last resort just 18 months before a general election.

The government, which received back-to-back credit rating upgrades from global agencies Moody's and Fitch in recent weeks, is pushing back against Fund prescriptions that officials fear would trigger precisely the kind of economic pain voters punished them for in 2024, when IMF-backed tax hikes sparked deadly nationwide protests.

At issue is not whether Kenya needs IMF support, officials said. Treasury officials acknowledged the new programme is critical to plug a gaping fiscal hole. But the contention is what the government must do to get it.

“The IMF wants cuts. Ruto wants votes. Something has to give,” said a government insider who spoke on condition of anonymity. 

The Bretton Woods institution is demanding deep structural reforms, including a reclassification of billions in off-budget debt, governance overhauls, and what one official described as "significant" fiscal consolidation before any new money flows.

"We are not negotiating with the IMF," David Ndii, the former chairperson of the President's Council of Economic Advisers and architect of Ruto's "Bottom-Up" economic model, posted on social media platform X last week, in a blunt dismissal that contradicts the Treasury's public position.

The intervention from Ndii, who remains influential despite a High Court ruling in January declaring his office unconstitutional, underscores the ideological battle playing out behind closed doors. 

His statement came just as an IMF team led by Haimanot Teferra departed Nairobi on March 4 without securing a deal, having spent nine days in talks that yielded only a terse communique saying discussions would continue at the Spring Meetings in Washington.

President William Ruto's calculus is brutally simple, insiders and analysts said.

With the August 2027 vote approaching, imposing new austerity measures could be politically fatal, officials reckoned.

His administration has already spent the past year rebuilding its base after the 2024 protests forced a humiliating policy reversal on tax hikes.

The government's draft Sh4.7 trillion budget for 2026/27, unveiled in February, tells the story of an administration in campaign mode. 

Agriculture sector financing has been boosted to Sh77.7 billion, with fertiliser subsidies reaching seven million farmers ahead of the long rains. 

The NYOTA project is disbursing Sh50,000 business grants to young entrepreneurs across 27 counties. The Hustler Fund has pumped Sh72 billion into micro-enterprises.

These are not the policies of a government preparing to slash spending, officials said. 

"The authorities are trying to walk a tightrope: showing the IMF a path to fiscal consolidation while demonstrating to voters that their lives are improving," said Ian Njoroge, an independent economist in Nairobi. "The budget tries to walk this line, but the IMF will want concrete, binding commitments."

Fund officials have made clear they will not repeat the mistakes of Kenya's previous programme, which was terminated in 2025 after the country  missed performance targets, costing it Sh110 billion in undisbursed funds.

Central to the current impasse is the classification of billions in off-budget debt, including a $3.5 billion conversion of Chinese railway debt into a securitised loan. 

IMF officials argue these opaque structures mask Kenya's true debt burden and circumvent parliamentary oversight, making genuine fiscal planning impossible.

Then there is the shilling. Fund officials have privately expressed concern that the currency's unusual stability—it traded at 129.02 per dollar for weeks on end—may reflect heavy central bank intervention that distorts monetary policy. The CBK does not publicly disclose its activities in the money market.

Governance reforms have emerged as another non-negotiable. An IMF governance diagnostic report, shared with Kenyan authorities in draft form, is understood to identify "systemic vulnerabilities" in public financial management and procurement. The Fund's spokesperson confirmed last month that these findings would be central to any new programme.

"Publication will follow standard IMF practice and requires the authorities' consent," the spokesperson said, suggesting Nairobi's willingness to release a potentially embarrassing audit will be a test of its reform credentials.

Kenya's recent credit rating upgrades have strengthened its hand. 

Moody's lifted the country to "B3" from "Caa1" on January 27, citing reduced default risk and improved external liquidity. Fitch followed with an affirmation at 'B-' and a stable outlook. S&P is expected to weigh in soon.

The upgrades provide rare breathing room, suggesting markets are more optimistic about Kenya's trajectory than the IMF's prescriptions would imply. Treasury officials have pointed to the ratings as validation of their approach: gradual reform without shock therapy.

"We are transitioning from fiscal stabilisation to scaled-up investment to drive the next phase of economic growth," the Cabinet noted in a dispatch accompanying the budget, framing the spending increases as a deliberate departure from austerity.

The numbers however tell a more complicated story. 

Public debt has crossed Sh12.8 trillion, with servicing costs projected to consume Sh1.66 trillion in the coming financial year, nearly half of ordinary revenue. 

Revenue collections consistently fall short.  By December 2025, the target was missed by Sh111.6 billion.

The supplementary budget tabled in Parliament last week increases gross ministerial expenditure by 11.3 per cent to Sh2.84 trillion, with significant allocations for salary shortfalls in ministries. 

Development expenditure now stands at 29.3 per cent of the ministerial budget, below the 30 per cent legal threshold.

"The government is borrowing heavily to invest in growth, while simultaneously struggling to collect revenue and control its own spending," Njoroge said.

Without a new IMF deal, Kenya's options narrow sharply. Domestic borrowing is expensive and already surpassing internal limits. International capital markets remain constrained by high interest rates—the Eurobond yields tracked by the CBK rose 51 basis points last week alone as Middle East tensions spooked investors.

The shilling's stability, touted as a victory by the administration, could become vulnerable without the backstop of an IMF programme, analysts said. 

Foreign exchange reserves stand at a comfortable $14.6 billion, but reserves alone cannot sustain confidence indefinitely, experts cautioned.

For Ruto, the calculation extends beyond economics, however. 

Political observers say his political survival depends on demonstrating that his "Bottom-Up" model delivers tangible improvements for the "hustlers" who formed his base—small traders, farmers, and youth. 

The IMF, for its part, has signalled flexibility on timing but not on substance. The Spring Meetings in April offer a deadline of sorts.  

A deal by then would allow disbursements to flow before the election cycle fully grips Nairobi's attention. "We continue to engage in close and constructive dialogue with the Kenyan authorities," the IMF spokesperson said.

One Treasury official, speaking on condition of anonymity, said: "The IMF wants us to do things that would make us unpopular. But if we become unpopular, we won't be in office to implement their reforms anyway."