Kenya’s renewed engagement with the International Monetary Fund (IMF) risks tipping fiscal consolidation into damaging austerity unless social spending and budget credibility are protected, the country’s budget watchdog warned, even as the government rolls out new off-budget financing vehicles that could weaken oversight.
- •Speaking at the launch of the Kenya Macro Fiscal Analytics Snapshot 2025–2026, Controller of Budget Dr. Margaret Nyakango said IMF-backed reforms and the planned operationalisation of the National Infrastructure Fund (NIF) must be carefully sequenced to avoid undermining service delivery and transparency.
- •Kenya entered a new IMF-supported programme as it seeks to stabilise public finances strained by heavy debt-servicing costs, weak revenue performance and rising social pressures.
- •While the programme aims to restore confidence and anchor reforms, Nyakango cautioned that IMF conditionalities often come with trade-offs that disproportionately affect households.
“Macroeconomic stability is necessary, but it is not sufficient,” Dr. Nyakango said. “Fiscal consolidation is essential, but it must be fair, well sequenced, and people-centred.”
The macro snapshot warns that if current trajectories persist, Kenya risks deepening inequality, reversing human development gains and increasing household vulnerability through high out-of-pocket health costs and weak social protection. Fiscal stress and recurrent tax changes also threaten to erode public trust, heightening social tensions.
For many households, Dr. Nyakango said, macro stability has coincided with a higher cost of living, declining real wages, insecure informal employment and reduced access to quality public services. Poverty remains high and its decline slow, she added.
“This disconnect matters because it raises a fundamental question: are public resources being deployed to improve citizens’ lived realities?” Dr. Nyakango said.
According to the macro-fiscal snapshot by the Institute of Public Finance, Kenya’s economy remains relatively resilient, with medium-term growth projected at about 5%, supported by agriculture, easing inflation and improved macroeconomic stability. But the report argues that stability has failed to translate into shared prosperity.
“Front-loaded fiscal tightening can suppress household welfare and slow economic growth,” Dr. Nyakango added, warning that rapid consolidation risks constraining social and development spending while protecting rigid recurrent costs such as wages and debt interest.
Rigid budgets, shrinking space
Rising debt interest payments and public-sector wages now dominate Kenya’s expenditure, squeezing fiscal space for health, education, water and social protection, the report shows. Nakango said this rigidity is visible across sectors.
In health, per capita spending has continued to fall even as population growth, disease burden and declining donor support increase pressure on the system. In education, constrained non-wage spending is undermining quality and equity, while water and sanitation outlays remain uneven, reinforcing regional disparities.
Social protection programmes, she said, continue to suffer delayed disbursements, weakening their ability to cushion vulnerable households, while women and youth programmes are often among the first to face cuts during fiscal tightening.
“These are not theoretical risks,” Dr. Nyakango said. “They are already manifesting in communities across the country and are reflected in our quarterly budget implementation reports.”
She also flagged persistent weaknesses in budget credibility, including repeated revenue overestimation, frequent supplementary budgets and significant deviations between approved allocations and actual spending.
“Weak budget credibility erodes planning certainty, disrupts service delivery and ultimately shifts the burden of adjustment onto citizens with the least capacity to absorb shocks,” she said.
Dr. Nyakango said Kenya’s IMF engagement must confront implementation gaps that have plagued past programmes. Over-reliance on the Fund, she warned, can weaken domestic policy ownership, making reforms harder to sustain once programmes end.
“We should not take IMF programmes wholesale,” she said. “We need to speak up.”
The Lingering Questions
Dr. Nyakango also raised concerns over the National Infrastructure Fund, established under the Government-Owned Enterprises Act, which she said could bypass parliamentary scrutiny and the oversight mandate of her office.
“It will be necessary to monitor whether privatisation proceeds are channelled to the fund rather than the Consolidated Fund, and whether these resources finance viable, clearly verifiable projects,” she said, adding that the fund is already under scrutiny from multiple stakeholders.
She cautioned that new financing vehicles and off-budget arrangements risk weakening transparency if not properly designed, echoing broader concerns about accountability under fiscal pressure.
