What You Need to Know
The IMF has directed Kenya to classify Ksh335 billion raised through future tax pledges as public debt. This directive threatens President William Ruto’s infrastructure financing strategy and complicates the government’s new IMF lending program. The IMF’s report emphasizes that these funds should be recognized as debt liabilities, impacting Kenya’s borrowing levels and financial flexibility.
Africa-Press – Kenya. The International Monetary Fund (IMF) has told Kenya to count Ksh335 billion raised through future tax pledges as public debt, a directive that directly threatens President William Ruto’s infrastructure financing strategy and his government’s push for a new IMF lending programme.
The IMF made this position clear in a report published on its website, saying Kenya has raised at least Ksh335 billion, roughly USD2.6 billion, by securitising specific tax flows to bankroll major construction projects across the country.
This implies that the government has been using future tax collections as collateral to raise cash today, funding roads, railways, stadiums, and airports, without officially adding those obligations to the national debt register.
The IMF pointed out key infrastructure projects under the Ruto Presidency, stating categorically that the funds used to steer these mega projects ought to be regarded as debt liabilities on the international scale.
“Such income “should be recognised as a debt liability under the international statistical standards,” stated the IMF.
IMF reports that the sports levy has been pledged to finance a new national stadium, Talanta Stadium, while a fuel tax is used to fund road construction- Mau-Rironi Summit Dual Carriage. At the same time, an import duty is funding a brand-new railway line, the Standard Gauge Railway (SGR) extension from Naivasha to Malaba, expected to ease cargo movement, and a passenger tax has also been earmarked for a major upgrade at Jomo Kenyatta International Airport (JKIA).
The fund went further, laying out exactly how the reclassification should work, giving Kenya two specific options for how securitisation proceeds must be recorded and reported going forward, stressing that the proceeds must be treated as a loan.
“Securitisation of future revenue should either be treated as a loan to the securitisation unit or as direct borrowing of the government,” stated the IMF.
This leaves little wiggle room for the National Treasury, according to experts, because classifying securitised revenue as debt increases Kenya’s official borrowing levels, tightens debt thresholds, reduces off-budget financing flexibility, and subjects all such deals to stricter IMF and market scrutiny constraints.
Treasury Secretary John Mbadi has in the past been against such measures from the IMF, saying such financing is off the government’s balance sheet and shouldn’t be designated as debt.
This comes as Kenya and the IMF. held a high-level meeting held on Monday, April 13, that brought together IMF Managing Director Kristalina Georgieva and National Treasury officials led by Cabinet Secretary John Mbadi, Principal Secretary Chris Kiptoo and Central Bank of Kenya Governor Kamau Thugge in Washington, D.C.
The discussions focused on Kenya’s economic performance, financial conditions, inflation, reform priorities and the impact of global tensions, particularly the Middle East conflict, with the IMF assuring the Kenyan government to cushion the country from the economic impacts of the war.
Kenya has been actively seeking innovative financing methods to support its infrastructure projects, often securitizing future tax revenues. This approach allows the government to access funds for development without immediately impacting the national debt register. However, the IMF’s recent directive highlights the need for transparency and adherence to international financial standards, which could reshape Kenya’s fiscal strategy and borrowing practices moving forward. The implications of this classification could affect Kenya’s economic stability and its relationship with international financial institutions.
