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Kenya’s financial landscape is facing mounting external risks following the cancellation of its ninth and final review under the current Extended Fund Facility (EFF) and Extended Credit Facility (ECF) programs, according to Fitch Ratings. The decision exacerbates the government’s fiscal and external financing challenges, as the country struggles to meet revenue and budget deficit targets under these programs.
Fitch previously projected that the IMF-backed programs would conclude as scheduled in April 2025, with a successor facility negotiated. However, despite the Kenyan government requesting a new IMF program, an agreement has yet to be finalized. In the revised budget released in January, the government planned for multilateral financing to cover half of the USD5 billion it aimed to borrow externally by the end of June 2025 (FY25).
This included a final disbursement of approximately USD500 million under the EFF/ECF programs and an additional USD400 million from the IMF’s Resilience and Sustainability Facility. However, Fitch warns of significant risks of delays in securing multilateral funding, including the anticipated USD 800 million from the World Bank’s Development Policy Operations, until a new IMF agreement is reached.
Securing a new IMF deal may prove challenging, given Kenya’s difficulties in meeting the fiscal conditions under the previous arrangements. In January, Fitch forecasted further fiscal slippage, projecting a budget deficit of 4.8% of GDP for FY25—1.5 percentage points above the government’s initial target under the prior IMF programs and 0.4 percentage points higher than the revised January 2025 target.
The widening deficit is primarily driven by rising debt servicing costs, increased social spending, and new expenditure obligations from collective bargaining agreements. Revenue reforms have seen limited progress, further straining the fiscal outlook.
Additionally, Fitch analysts anticipate that the new U.S. administration may significantly scale back bilateral assistance to Kenya, which averaged 0.7% of GDP annually between 2021 and 2023. Reduced multilateral and bilateral funding could push the government to rely more on expensive commercial borrowing to meet external financing needs.
Despite these challenges, Kenya’s short-term external refinancing pressure has slightly eased following the issuance of a USD1.5 billion sovereign bond in February 2025. This enabled the government to repurchase USD900 million of its 2027 Eurobond. Kenya has also secured a USD1.5 billion financing line from the United Arab Emirates, though the terms remain undisclosed.
Fitch projects Kenya’s external debt servicing obligations to decline in FY25 to USD4.1 billion, down from USD5.4 billion in FY24. However, annual debt service requirements are expected to exceed USD5 billion from FY26 to FY29, highlighting sustained external financing pressures.
A key concern is Kenya’s heavy interest burden, with Fitch forecasting interest payments to remain above 30% of revenue in FY25 and FY26—more than double the 14.8% median for sovereigns rated in the ‘B’ category.
Kenya’s growing reliance on official borrowing to finance its current account deficits has led to a sharp rise in net external debt, which Fitch estimates at 53% of GDP by the end of 2024, nearly double the ‘B’ category median of 27.9%. The country’s high proportion of foreign-currency-denominated public debt also increases the risk of debt servicing difficulties in the event of sharp currency depreciation.
In its January assessment, Fitch anticipated Kenya’s foreign exchange reserves to remain weak, projected at USD 8.9 billion by December 2025. This would cover 3.6 months of external payments, falling below the ‘B’ category median of 4.2 months. A further depletion of reserves or worsening financing constraints could lead to a downgrade in Kenya’s credit rating, Fitch warned.
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