Kenya moves to secure IMF support as Iran tensions raise energy costs

As rising global energy prices and widening fiscal demands place fresh pressure on Kenya’s economy, officials in Nairobi are moving to secure new support from the International Monetary Fund in an effort to shield the country from external shocks linked to the conflict involving Iran.

Treasury Secretary John Mbadi said Monday that Kenya expects to conclude discussions on a new IMF program by June or July, potentially unlocking additional financing for an economy grappling with high borrowing costs, inflation risks and pressure on public finances. While Mbadi did not confirm the size of the package under negotiation, he previously said the government could seek as much as KSh100 billion ($774 million).

Kenya targets economic shock protection

The talks come less than a year after Kenya abandoned the final review of a four-year IMF arrangement, a decision that cost the government roughly $850 million in expected budget support. The collapse of the program followed nationwide protests that forced authorities to withdraw planned tax increases after deadly demonstrations over the rising cost of living.

Kenya is now facing additional strain from disruptions to shipping routes through the Strait of Hormuz, one of the world’s most important oil transit corridors. The fallout has increased the cost of fuel, fertilizer, and imported food, exposing the vulnerability of countries heavily dependent on imported energy and goods. 

Mbadi said IMF backing would help strengthen Kenya’s fiscal position and provide room to manage economic shocks. Discussions with the Washington-based lender have also focused on governance reforms, fiscal discipline, and transparency in public finances. 

Kenya shifts external borrowing strategy

At the same time, the government is trying to ease pressure on households already struggling with higher transport and energy costs. Kenya recently cut value-added tax on fuel products by half to cushion consumers from rising global oil prices, though the move has added pressure on state revenues.

Officials are also pursuing alternative funding sources as global market conditions remain uncertain. Kenya plans to issue its first green sovereign bond worth $500 million before the fiscal year ends in June, with backing from the World Bank. Central Bank Governor Kamau Thugge said the bond forms part of a broader external borrowing strategy aimed at supporting government financing needs as volatility in global markets persists.

IMF Managing Director Kristalina Georgieva recently said several countries have approached international lenders for help managing the economic impact of rising geopolitical tensions, underscoring growing concern over the strain higher energy costs could place on already indebted economies.