The ongoing US-Israel war on Iran has compelled Kenya to resume negotiations with the World Bank and the International Monetary Fund (IMF) for emergency financing, signaling potentially challenging conditions ahead for Kenyan taxpayers as the country seeks access to cheaper multilateral funding.
Kenya Requests Emergency Financing from World Bank
Last week, Kenyan authorities indicated the urgent need for emergency financing from the World Bank, while emphasizing the critical importance of securing a funded IMF programme amid ongoing discussions with both multilateral lenders.
“Support from the IMF and the World Bank would provide concessional financing that would replace expensive domestic borrowing, thereby reducing debt vulnerabilities by cutting interest costs,” said Central Bank of Kenya (CBK) Governor Kamau Thugge.
IMF Sets Tough Engagement Terms for Kenya
The IMF typically imposes the strictest engagement conditions of the two multilateral lenders, including comprehensive reforms on State corporations, mandatory spending cuts, and increased revenue collection measures.
This signals the likelihood of new taxes, aggressive pursuit of tax evaders and cheats, and the integration of traders and workers from the informal sector into the formal tax system.
World Bank Offers Relatively Softer Terms
In contrast, the World Bank maintains relatively softer terms that primarily focus on supporting socioeconomic outcomes such as climate change mitigation, implementing competition curbs on dominant firms, and promoting the integration of minority groups, including refugees.
Both Lenders Froze Funding in 2025
Both the IMF and the World Bank adopted a hardline stance with Kenya in 2025, freezing all funding after the country failed to comply with agreed programme conditions.
Iran War Pressures Kenya’s Domestic Revenues
The Iran war is expected to exert significant pressure on Kenya’s domestic revenues, forcing increased deficit financing while also creating exchange rate pressures. The inflow of remittances is projected to decline substantially as a result of the conflict.
Kenya Must Meet Performance Criteria
Kenya must now demonstrate commitment to meeting set performance criteria to access funding from both multilateral institutions, even as the country is deemed to have adequate buffers against external shocks, including nearly six months of import cover.
Foreign Exchange Reserves Decline
Kenya’s request for additional emergency financing from the World Bank comes against the backdrop of a recent decline in foreign exchange reserves, which fell by $1.3 billion (Sh167.9 billion) between March 5 and April 9, closing at $13.3 billion (Sh1.7 trillion), equivalent to 5.7 months of import cover.
World Bank Froze Sh96.8 Billion Loan
The World Bank previously froze a Sh96.8 billion ($750 million) loan after Kenya struggled to honour 11 conditions, including amendments to the Competition Act to strengthen regulations controlling the operations of firms with market dominance.
Kenya also encountered challenges with implementing the Treasury Single Account and e-government procurement systems, as well as establishing a framework for faster approval of county government additional allocation bills.
Kenya Seeks Rapid Additional Funding by June
The country is now seeking rapid additional funding from the World Bank by June to cushion the economy from the shocks of the US-Israel war with Iran. This means Kenya now expects a larger disbursement from the World Bank than the previously frozen Sh96.8 billion.
The CBK confirmed that the additional World Bank financing is expected before the end of June and will be drawn from the multilateral lender’s rapid response financing schemes, representing an additional financing request beyond the earlier targeted Sh96.8 billion Development Policy Operation (DPO) loan.
CBK Governor Optimistic About Agreement
“We have had very good discussions with the World Bank on the DPO and also getting additional financing, given the kind of shocks that we are facing. We hope that we can reach an agreement with the World Bank on the Rapid Results Operation so that we can get additional financing over and above the DPO,” Dr. Thugge told Business Daily on the sidelines of the recently concluded Spring Meetings in Washington, D.C.
While the CBK did not specify the exact amount of additional funds Kenya expects to receive from the World Bank, it described the sum as ‘significant.’
Funds Expected This Financial Year
“Our hope and expectations are that this money will come in this financial year. The amount of financing is yet to be determined, but it is about getting additional financing from already existing commitments which are yet to be disbursed,” Dr. Thugge explained.
New IMF Programme Under Discussion
Kenyan authorities are simultaneously engaged in talks to unlock a new funded IMF programme, despite earlier hesitation.
The IMF suggests that Kenya might prefer to avoid a new programme as it seeks to become a mature economy capable of tapping financing from international capital markets. However, the Fund has cautioned that shocks from the Iran conflict could lock Kenya out of the market if interest rates rise significantly.
A new funded programme is therefore viewed by the IMF as an alternative to provide Kenya with a cheaper financing option.
Market Access Volatility Concerns
“Kenya is, of course, a market access country or switching towards market access. These days, market access has become very volatile, and the government is continuously rethinking how to best address its financing needs,” said Abebe Selassie, the outgoing Director of the African Department at the IMF.
“They (Kenya) have done a lot of liability management operations to push back big lumpy repayments. As market conditions become difficult, Kenya has been thinking of relying on IMF resources.”
IMF Terminated Previous Programme
The IMF terminated a multi-year programme with Kenya in March 2025 before disbursing a final Sh109.8 billion ($850.9 million) tranche.
This followed Kenya’s failure to honour agreed conditions, including the restructuring of national carrier Kenya Airways and implementing restrictions on the use of cash from the fuel stabilisation fund, which was diverted to other purposes. In total, the country failed to meet 11 of 16 conditions, with others including curbs on spending, bolstering tax collection, and settling suppliers’ dues.
GDP Growth Outlook Trimmed
Both the IMF and the World Bank have revised downward their outlook for Kenya’s gross domestic product growth this year, attributing the pessimistic view to the impact of the war, which has resulted in higher fuel prices.
Fiscal Consolidation Required for New Funding
The IMF maintains that Kenya must demonstrate its ability to deliver on a credible budget deficit reduction plan (fiscal consolidation) before it can unlock new funding.
“From our side, we have congratulated the government for the strong efforts being made to build buffers, particularly on the external front, but we have also pointed out that there needs to be a path towards credible fiscal consolidation, and we would like to see that for programme discussions to advance,” Mr. Selassie added.
Kenya’s Current Reserve Position
The CBK asserts that Kenya does not technically require IMF funding as its current official reserves stand at nearly six months of import cover, providing crucial support against external shocks.
Global and regional economists indicate that Kenya is largely cushioned against external shocks following recent key actions to improve debt sustainability, including Eurobond buybacks, which have eased refinancing and interest servicing pressures.
Safaricom Stake Sale to Boost Reserves
The government is set to receive an estimated Sh245.3 billion ($1.9 billion) from the sale of its 15 percent stake in Safaricom to South Africa’s Vodacom, with the inflows expected to lift the import buffer to seven months of import cover.
Kenya’s Proactive Debt Management
“Kenya acted very fast in terms of getting additional financing and has pushed out the maturity profile of their Eurobond debt down the road,” said David Cowan, Citi’s Chief African Economist.
“They also have some additional financing available to them. For instance, they (Kenya) still haven’t drawn down Sh129.1 billion ($1 billion) GCC (UAE) loan. Kenya can, for now, borrow cheaply from the Eurobond market, but if things turn against them, the money is there.”
Iran War Disrupts Energy Supply Chains
The US-Israel war on Iran has significantly disrupted energy supply chains, including fuel, liquid petroleum gas (LPG), and liquified natural gas (LNG).
Approximately one-fifth of the global crude supply flows through the Strait of Hormuz, a narrow sea channel that was shut during the conflict. While Iran and the US have announced the reopening of the Strait to sea traffic, uncertainty remains regarding whether a ceasefire will hold between the warring nations.
Energy Infrastructure Damage Concerns
Experts in the energy sector have warned that the reopening of the Strait won’t immediately restore energy supply chains, as related oil and gas infrastructure across the Gulf countries suffered intense damage, reducing and in some cases halting production entirely.