Kenya and the IMF Edge Closer to a New Deal as Nairobi Talks Begin

An International Monetary Fund team touched down in Nairobi on February 24, 2026, formally opening what could be one of the most consequential economic negotiations Kenya has undertaken in years. The staff mission, scheduled to run until March 4, is tasked with laying the groundwork for a successor lending arrangement after Kenya’s previous $3.6 billion Extended Fund Facility and Extended Credit Facility programme expired in April 2025 without the completion of its ninth and final review.

The visit signals a renewed and structured effort to bring Kenya back under an IMF umbrella, following months of preparatory dialogue in both Nairobi and Washington, D.C. The two sides had mutually agreed to abandon the previous programme rather than attempt a final review, opting instead to design an entirely new framework better aligned with the country’s current economic realities.

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What the Staff Mission Entails

The government confirmed the visit in a Eurobond prospectus released publicly on Tuesday, which formed part of a \$2.25 billion debt issuance completed the previous week. According to the prospectus, the mission is aimed at discussing “a successor arrangement aimed at supporting key policy reforms and potentially providing financial assistance,” with talks designed to align any new programme with Kenya’s “fiscal and economic priorities” while underpinning macroeconomic stability.

The IMF confirmed the mission had begun. “We continue to engage in close and constructive dialogue with the Kenyan authorities, including on their request for a new IMF-supported program,” an IMF spokesperson told Reuters.

Treasury Principal Secretary Dr. Chris Kiptoo, appearing before the National Assembly’s Departmental Committee on Finance and National Planning to present the 2026 Budget Policy Statement, confirmed the IMF team’s arrival and clarified that the discussions would focus on crafting an entirely new programme, not reviving the lapsed one. He added that Kenya’s economy grew by an estimated 5.0 percent in 2025 and is projected to expand 5.3 percent in 2026, driven by improved agricultural output, resilient services sector growth, and rising diaspora remittances.

The Road to Talks: A Timeline of Engagements

This week’s mission is not the beginning of Kenya’s engagement with the IMF over a new deal — it is the latest and most structured chapter in a relationship that has been under construction since mid-2025. An IMF governance diagnostic mission concluded a two-week assessment of Kenya’s anti-graft legal and institutional framework at the end of June 2025, examining graft risks in fiscal and central bank governance, rule of law, and market regulations.

A second staff mission, led by IMF Mission Chief for Kenya Haimanot Teferra, followed in late September and ran through early October 2025. That team held high-level meetings with President William Ruto, Treasury CS John Mbadi, and Central Bank of Kenya Governor Kamau Thugge, conducting a fresh macroeconomic assessment and laying out the reform benchmarks Kenya would need to meet to qualify for a new programme. According to Teferra, the key prerequisites include restoring fiscal credibility, ensuring debt sustainability, and strengthening transparency and governance within the public sector.

CBK Governor Kamau Thugge confirmed during a Monetary Policy Committee press briefing in December 2025 that another IMF staff visit was planned for January 2026. The January engagement focused on completing a debt sustainability analysis, a key technical prerequisite for finalising any new lending arrangement. Thugge noted that President Ruto had also met directly with IMF Managing Director Kristalina Georgieva in Washington to underscore Kenya’s commitment to the process.

The Securitisation Dispute: A Core Stumbling Block

At the centre of Kenya’s difficult path back to an IMF programme lies a fundamental accounting disagreement over how to treat securitised government revenue streams. Faced with mounting pending bills and constrained fiscal space, the Ruto administration turned to a novel financing instrument: securitising future revenue flows to raise immediate capital for infrastructure development.

The most prominent example is the securitisation of a portion of the Road Maintenance Levy Fund. Through a Special Purpose Vehicle — Oak Assetco SPV Limited — the Kenya Roads Board pledged Ksh 7 per litre out of the Ksh 25-per-litre fuel levy to investors, raising approximately Ksh 175 billion upfront to clear pending bills owed to road contractors. The government has indicated it plans to issue road bonds totalling Ksh 300 billion under this structure.

Treasury CS Mbadi has defended the model, arguing that once the right to collect future revenue is transferred to an SPV, sovereign risk is eliminated. “Our position as the government is that once you sell a right to a special purpose vehicle, then there is no risk to the government at all,” Mbadi told Reuters in November 2025. The IMF, however, classifies these securitised obligations as sovereign debt, creating a disagreement that has directly affected the quantum of any programme Kenya could access. Under IMF rules, Kenya’s available borrowing headroom under normal access limits was estimated at approximately Ksh 64.8 billion (around \$501 million) as of end-June 2025.

The same securitisation model has been floated for infrastructure projects including the renovation of Jomo Kenyatta International Airport and the extension of the Standard Gauge Railway to Uganda. Resolving how these liabilities are recorded is expected to be a central agenda item during the current staff mission.

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Kenya’s Eurobond Move and What It Signals to the IMF

Just days before the IMF team arrived, Kenya completed a significant capital markets operation that itself reflects the country’s effort to demonstrate fiscal discipline and market credibility. On February 20, 2026, the National Treasury successfully priced a \$2.25 billion dual-tranche Eurobond, comprising a \$900 million note maturing in 2034 at 7.875 percent and a \$1.35 billion note maturing in 2039 at 8.700 percent. The issuance was oversubscribed, with the seven-year tranche attracting bids of \$1.8 billion and the 12-year tranche drawing orders of \$2.8 billion.

Proceeds from the issuance are earmarked primarily to refinance existing Eurobonds maturing in 2028 and 2032, with the government conducting a buyback tender of up to \$500 million in outstanding notes. Any surplus funds will be directed toward general budgetary support.

Government Spokesperson Isaac Mwaura characterised the issuance as a signal of reviving investor confidence. “This is not simply about borrowing money; it is a carefully planned and strategic debt management operation,” Mwaura said in a statement. The Eurobond’s success was in part enabled by Moody’s Ratings upgrading Kenya’s sovereign credit from Caa1 to B3 in January 2026, citing a reduction in near-term default risk, stronger foreign exchange reserves, and improved external liquidity. Fitch Ratings separately affirmed Kenya’s B- rating with a stable outlook.

The IMF staff mission discussions referenced the Eurobond prominently, with the government disclosing the talks in the very prospectus used to market the issuance — an unusual step that underscored how closely Kenya’s capital markets credibility is tied to its relationship with the Fund.

Fiscal Pressures and the Case for a New Programme

Finance Minister John Mbadi, who formally confirmed Kenya’s request for a new programme earlier in February, has been candid about the government’s motivations. Securing a deal with the IMF is not primarily about immediate disbursements — neither the current fiscal year budget nor the upcoming 2026/2027 budget has factored in IMF inflows. Rather, it is about bolstering investor confidence and signalling credibility.

Kenya’s total public debt has risen to Ksh 12.25 trillion, with debt servicing consuming a growing share of government revenue. Treasury data indicate that interest payments alone absorb between 30 and 35 percent of tax revenue — a ratio that development economists flag as a constraint on productive spending. The government’s 2026 Budget Policy Statement projects that external debt principal repayments will rise sharply in the current fiscal year, making the case for proactive liability management ever more pressing.

The previous IMF programme — approved in April 2021 to help Kenya recover from the economic shock of the COVID-19 pandemic — was not completed. Kenya failed to meet 11 of 16 performance conditions agreed with the IMF, and the ninth review was abandoned, forfeiting a final disbursement of approximately \$850 million. That history makes the current negotiations especially significant, as any new programme will require Kenya to demonstrate it can deliver on structural reform commitments that proved elusive in the previous cycle.

Conditions, Cautions, and What Comes Next

Economists watching the talks closely note that any new programme is likely to come attached to politically sensitive conditions. The IMF’s standard reform agenda for countries in Kenya’s position typically encompasses fiscal consolidation measures, including stronger domestic revenue mobilisation, reductions in non-priority spending, and reforms to state-owned enterprises. These requirements tend to generate political friction — particularly in an environment where public tolerance for austerity is limited following years of stalled growth and the June 2024 protests that erupted over proposed tax increases.

Analysts cited in Kenyan media have warned that “the conditions will be politically painful,” while acknowledging that a successful deal would provide two key economic benefits: access to foreign exchange support and a credibility anchor for international investors. That credibility dimension is arguably more important in the near term than any direct disbursement, given that IMF programmes tend to unlock concessional financing and favourable borrowing conditions from other multilateral and bilateral lenders.

The World Bank, which is also in advanced discussions with Kenya over a \$750 million Development Policy Operations disbursement, has tied its own approval timelines partly to the resolution of key policy issues. Progress on the IMF front is thus expected to have a broader multiplier effect on Kenya’s access to concessional capital.

The staff mission running through March 4 will not produce a finalised agreement. Rather, it represents the technical phase of negotiations, during which IMF economists will assess the macroeconomic framework, stress-test fiscal projections, and work through contentious issues like the securitisation debt classification. A staff-level agreement — which would then go to the IMF Executive Board for formal approval — is likely several months away.

What the mission does represent, however, is a meaningful step away from the uncertainty that has characterised Kenya’s relationship with the Fund over the past year. With a successful Eurobond behind it, a credit upgrade in hand, and an IMF team at the table, Nairobi is positioning itself for a more stable fiscal path — even as the hard work of reform and negotiation continues.

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photo source: Google

By: Montel Kamau

Serrari Financial Analyst

26th February, 2026