The International Monetary Fund (IMF) has wrapped up a crucial two-week governance scrutiny mission in Kenya, a pivotal exercise aimed at bolstering the integrity and efficiency of public offices. Conducted from June 16 to 30, 2025, the review sought to meticulously identify weaknesses in governance and pinpoint corruption vulnerabilities that could significantly impede Kenya’s economic performance. While the specifics of their findings remain under wraps for now, the mission underscores the IMF’s intensified focus on governance as a prerequisite for sustainable economic growth and continued financial support.

The IMF delegation, led by Rebecca Sparkman, engaged in extensive consultations with a broad spectrum of government institutions and non-state actors. This comprehensive approach reflects the intricate nature of governance challenges, which permeate various facets of a nation’s economy and public life. The insights gathered during this mission will be instrumental in formulating a detailed action plan, complete with specific, sequenced recommendations designed to address these macro-economically critical governance weaknesses and corruption risks. This ongoing collaboration is vital for Kenya as it navigates complex fiscal challenges and seeks to unlock crucial international lending.

The IMF’s Evolving Role in Governance: A Global Imperative

The IMF’s engagement with member countries has evolved significantly over the years, moving beyond traditional macroeconomic surveillance to increasingly incorporate governance and anti-corruption issues. This shift is rooted in the recognition that poor governance and rampant corruption can severely undermine a country’s economic stability, distort markets, deter investment, and ultimately threaten sustainable development.

In 2018, the IMF adopted a comprehensive Framework for Enhanced Engagement on Governance. This framework aims to promote a more systematic, effective, candid, and even-handed approach to addressing governance matters that directly impact macroeconomic performance. The Governance Diagnostic (GD) mission, like the one recently concluded in Kenya, is a key tool within this framework. It is a voluntary exercise, initiated at the request of member authorities, and involves a thorough analysis of systemic corruption vulnerabilities and integrity weaknesses across six core state functions:

1. Fiscal Governance: This includes the management of public finances, budgeting processes, expenditure control, and revenue administration. Weaknesses here can lead to inefficient public spending, revenue leakages, and accumulation of arrears.
2. Central Bank Governance and Operations: Ensuring the independence, transparency, and accountability of the central bank, which is crucial for monetary policy effectiveness and financial stability.
3. Financial Sector Oversight: Regulating and supervising financial institutions to prevent illicit financial flows, money laundering, and ensure market integrity.
4. Rule of Law: Upholding legal frameworks, ensuring judicial independence, and enforcing contracts, which are fundamental for a predictable and fair business environment.
5. Market Regulation: Promoting competition, preventing monopolies, and ensuring transparency in various markets to foster fair economic activity.
6. Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT): Strengthening legal and institutional frameworks to prevent the abuse of the financial system for illicit purposes.

Beyond these core functions, GDs also assess the effectiveness of a country’s broader anti-corruption legal and institutional frameworks, including asset declaration regimes, whistleblower protection, and independent oversight bodies. The ultimate goal is to propose prioritized and sequenced advice for systematically addressing these vulnerabilities, fostering greater transparency and accountability.

Kenya’s Enduring Partnership with the IMF

Kenya has a long-standing and multifaceted relationship with the IMF, which has provided crucial financial assistance and policy advice over several decades. The country has engaged in numerous programs, including the Extended Fund Facility (EFF) and Extended Credit Facility (ECF) arrangements. These programs are designed to support countries in addressing balance of payments problems, strengthening macroeconomic stability, and implementing structural reforms.

The current IMF-supported program for Kenya, approved in April 2021 for 38 months and extended in July 2023 to include a 20-month Resilience and Sustainability Facility (RSF) arrangement, aims to support economic resurgence post-COVID-19, reduce debt vulnerabilities, and promote fiscal consolidation. A key aspect of this program, as highlighted by the IMF itself, is the promotion of good governance. The Kenyan authorities’ program includes specific commitments to protect public resources, enhance transparency and accountability, and reduce corruption risks, particularly within State-Owned Enterprises (SOEs).

Recent milestones in this ongoing engagement include the approval of the combined seventh and eighth reviews of the EFF/ECF and the second review under the RSF in October 2024, which triggered significant disbursements of funds. This continuous engagement underscores Kenya’s reliance on external financing and the IMF’s role in guiding its economic reform agenda.

The Scope of the Governance Diagnostic Mission

The two-week mission involved extensive engagement with a wide array of stakeholders, reflecting the IMF’s holistic approach to governance assessment.

Government Institutions: The Core of Public Service

The IMF delegation meticulously engaged with various government institutions responsible for the day-to-day management of public resources and policy implementation. These included:

• Public Financial Management (PFM) Agencies: This involves ministries and departments responsible for budgeting, expenditure control, and financial reporting. Challenges in Kenya’s PFM systems, such as inconsistencies in expenditures, low absorption rates, and weak internal audit systems, have been identified in previous reports. The IMF’s review would assess the effectiveness of reforms aimed at improving budget reliability, transparency, and accountability.
• Tax and Expenditure Policy Bodies: This focuses on the efficiency and equity of revenue collection and the effectiveness of public spending. Kenya has recently faced debates over proposed tax hikes, which have sometimes been met with public resistance. The IMF would examine how tax policies are formulated and implemented, and whether expenditures align with national development priorities.
• Procurement Agencies: Public procurement is often a high-risk area for corruption. The mission would scrutinize the transparency, competitiveness, and integrity of public contracting processes. Issues like inflated tender prices, collusion, and payments for non-existent projects have historically plagued public procurement in Kenya.
• Mining Sector Regulators: Given Kenya’s mineral wealth, the governance of the mining sector is crucial. The IMF would assess frameworks for licensing, revenue collection, environmental protection, and community engagement to ensure transparency and prevent illicit financial flows.
• Financial Regulators: This includes the Central Bank of Kenya (CBK) and other bodies responsible for overseeing the financial sector. The CBK plays a critical role in maintaining monetary stability and regulating financial institutions. The IMF would review frameworks for financial stability, anti-money laundering (AML), and combating the financing of terrorism (CFT), particularly in light of Kenya’s efforts to address deficiencies identified by international bodies like the Financial Action Task Force (FATF).
• Anti-Corruption Enforcement Agencies: The effectiveness of institutions like the Ethics and Anti-Corruption Commission (EACC) in investigating, prosecuting, and recovering assets from corruption cases would be a key area of review. Transparency International’s 2024 Corruption Perception Index (CPI) ranked Kenya at position 121 out of 180 countries with a score of 32 out of 100, a marginal improvement from 2023 but still indicating “serious levels of public sector corruption.” The report highlighted that “a one-point improvement is not enough,” underscoring the deep-rooted nature of the challenge.

Oversight Agencies and Legislative Bodies: Checks and Balances

The delegation also consulted with Kenya’s Central Bank (as both a financial regulator and a key institution for macroeconomic stability), oversight agencies, and members of the National Assembly. This engagement is crucial for understanding the system of checks and balances:

• Central Bank: Beyond regulation, the IMF would assess the CBK’s governance structure, operational independence, and its role in macro-financial stability, particularly in managing foreign exchange reserves and inflation.
• Oversight Agencies: This includes institutions like the Auditor General’s office and parliamentary committees responsible for scrutinizing government expenditure and ensuring accountability. The IMF would examine the follow-up mechanisms for audit findings and the overall effectiveness of these oversight bodies.
• National Assembly: Legislators play a critical role in enacting laws, approving budgets, and providing oversight. Engaging with members of Parliament helps the IMF understand the political will for reforms and the legislative landscape for anti-corruption efforts. The proposed “conflict-of-interest bill” is one such legislative measure that the IMF has encouraged.

Non-Government Stakeholders: The Voice of Society

Crucially, the IMF team extended its consultations to non-government stakeholders, including:

• Civil Society Organizations (CSOs): CSOs often have grassroots insights into the impact of corruption on ordinary citizens and can provide valuable perspectives on governance challenges and reform priorities. They act as watchdogs, advocating for transparency and accountability.
• The Private Sector: Businesses are directly affected by corruption through increased costs, unfair competition, and reduced investor confidence. Their input helps the IMF understand the practical implications of governance weaknesses on the business environment and investment climate.
• International Partners: Other international organizations, bilateral donors, and development partners working in Kenya provide a broader context of ongoing reforms and challenges, ensuring a coordinated approach to support.

This multi-stakeholder approach ensures that the diagnostic report is comprehensive, reflecting diverse perspectives and grounded in the realities of Kenya’s governance landscape.

The Nexus of Governance, Corruption, and Economic Performance

The IMF’s focus on governance is not merely an academic exercise; it is directly linked to Kenya’s economic stability and growth prospects. Corruption acts as a significant drag on economic performance by:

• Deterring Investment: Both foreign and domestic investors are hesitant to commit capital in environments perceived as corrupt due to unpredictable policy, unfair competition, and the risk of illicit demands. This stifles job creation and economic diversification.
• Misallocating Resources: Corruption diverts public funds from essential services like healthcare, education, and infrastructure into private pockets, undermining development goals.
• Increasing Costs of Doing Business: Businesses often face higher operational costs due to bribery, extortion, and inefficient bureaucracy.
• Eroding Public Trust: When public officials are perceived as corrupt, it erodes citizens’ trust in government institutions, leading to disengagement and reduced compliance with laws and taxes.
• Weakening Institutions: Corruption can undermine the independence and effectiveness of key state institutions, including the judiciary, law enforcement, and regulatory bodies.

Kenya’s economic performance, while showing resilience, has been challenged by factors such as high public debt, fiscal pressures, and the need to mobilize additional revenue. The “increased calls for Kenya to request an IMF assessment of corruption and governance issues as part of a push to unlock lending that has been stalled by the shelving of proposed tax hikes last year” directly highlight this critical link.

Last year, the Kenyan government faced significant public backlash and political resistance over proposed tax hikes, which were ultimately shelved or significantly scaled back. This created a revenue shortfall and exacerbated the country’s fiscal challenges, making continued access to external financing, particularly from institutions like the IMF, even more critical. However, international lenders often tie their support to commitments on governance and anti-corruption, recognizing that financial assistance can be ineffective if public resources are not managed transparently and accountably. The IMF’s mission is thus a crucial step in building confidence among lenders and unlocking further support.

Global Precedents: Lessons from Other Governance Diagnostics

The IMF has been conducting Governance Diagnostic reports on various member countries since 2014, providing valuable insights and guiding reform efforts worldwide. So far, the Fund has published reports on 14 countries, including:

• Ukraine: A country undergoing significant reforms amidst conflict, where governance issues are critical for reconstruction and international support.
• Cameroon: A nation grappling with resource governance challenges and the need to strengthen public financial management.
• Sri Lanka: A country that has faced severe economic crises, where governance and corruption issues were identified as significant contributing factors to its financial instability.

These diagnostics are not punitive but rather serve as a collaborative capacity development activity. They aim to help countries identify their specific vulnerabilities and develop tailored action plans. While the publication of the GD report is at the prerogative of country authorities, the IMF encourages transparency, as it fosters broader support for reforms from all key stakeholders. The findings from these reports often inform subsequent IMF-supported programs, surveillance activities, and technical assistance, with some recommendations even becoming conditionalities for future lending.

The Road Ahead: Recommendations and Reform Priorities

The findings from the recent mission will inform a draft report that will be shared with the Kenyan government later this year. This report will be more than just an assessment; it will include a “sequenced and prioritised reform plan” specifically aimed at addressing the identified governance-related vulnerabilities with macroeconomic implications.

The “sequenced” nature of the recommendations is crucial, implying a phased approach where foundational reforms precede more complex changes. “Prioritized” means focusing on the most critical areas that yield the greatest impact on economic performance and public trust. These reforms could include:

• Strengthening Legal Frameworks: Enhancing anti-corruption laws, ensuring compliance with international conventions like the United Nations Convention Against Corruption (UNCAC), and introducing legislation like the conflict-of-interest bill.
• Improving Public Financial Management: Implementing robust budgeting systems, enhancing expenditure controls, and ensuring timely and transparent financial reporting.
• Boosting Procurement Transparency: Adopting stricter rules for competitive procurement, strengthening oversight mechanisms, and leveraging technology to enhance transparency in public contracts.
• Empowering Anti-Corruption Institutions: Ensuring the independence and adequate resourcing of bodies like the EACC, improving investigation and prosecution rates, and facilitating asset recovery.
• Enhancing Data and Information Disclosure: Promoting proactive disclosure of public information, including budget documents, audit reports, and beneficial ownership information for companies, to foster greater accountability.
• Civil Service Reforms: Addressing issues like nepotism, promoting merit-based appointments, and strengthening integrity mechanisms within the public service.

The IMF’s statement that “collaboration on the Governance Diagnostic will continue over the next several months” indicates an ongoing partnership. This means that the process is not a one-off event but a sustained effort, with the IMF providing technical assistance and monitoring progress on the agreed-upon reforms.

Conclusion: A Defining Moment for Kenya’s Governance Journey

The conclusion of the IMF’s governance scrutiny mission marks a significant juncture for Kenya. It highlights the international community’s recognition of the critical link between good governance, anti-corruption efforts, and a nation’s economic health. For Kenya, this mission is an opportunity to reinforce its commitment to transparency and accountability, crucial for unlocking further international financial support and fostering a more attractive environment for both domestic and foreign investment.

By embracing and implementing the forthcoming reform recommendations, Kenya can strengthen its institutions, improve public service delivery, and build greater trust among its citizens and international partners. This journey towards enhanced governance is not merely about meeting external conditions but about laying a stronger, more equitable foundation for Kenya’s long-term economic prosperity and achieving the ambitious goals outlined in its Vision 2030. The eyes of both the Kenyan public and the international community will be closely watching the government’s response and its commitment to translating these diagnostic findings into tangible, impactful reforms.

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photo source: Google

By: Montel Kamau

Serrari Financial Analyst

3rd July, 2025