The International Monetary Fund (IMF) is sparking a potential confrontation with Kenya's Treasury by calling for significant changes in how the country classifies its public debt. In a recent report, the IMF urged Kenya to include pending bills, infrastructure funds from securitization, and over Sh1 trillion in non-guaranteed loans from state corporations in its public debt calculations. This move could push Kenya's total public debt beyond the Sh13 trillion threshold, igniting a contentious debate over fiscal accountability and transparency.

A Narrow Definition in Question

Currently, Kenya employs a narrow definition of public debt, encompassing only loans and government securities, such as Treasury bonds and bills. The IMF argues that this limited scope does not accurately reflect the country's financial obligations. "It is imperative that this scope of debt reporting is expanded to include a broader range of debt instruments," the IMF stated in its technical report, emphasizing the need to account for "pending bills" as part of a comprehensive debt strategy.

This clash arises from previous disagreements between the IMF and the Treasury regarding debt definitions, particularly concerning securitization, which has emerged as a key barrier to securing new support from the fund. With Kenya seeking a new IMF lending program following the expiration of a $3.6 billion deal in April 2025, the stakes are high.

The Securitization Debate

In response to rising fiscal pressures, the Kenyan government has employed securitization strategies to ring-fence certain revenue streams, such as the rail development levy and road maintenance levy. Through this process, the government has attempted to borrow against these funds via special entities, known as Special Purpose Vehicles (SPVs). The Treasury maintains that once rights are sold to an SPV, the government bears no risk, arguing that securitized debt should not be classified as sovereign debt.

However, the IMF counters that securitization should be treated as either a loan to the securitization unit or direct government borrowing. "The issue of securitization is not that the IMF thinks it’s the wrong idea. They support it as an innovative funding mechanism," stated Treasury Cabinet Secretary John Mbadi. "The concern lies in the accounting—whether it should be captured as sovereign debt."

Impending Financial Implications

The IMF’s recommendations could significantly alter Kenya’s financial landscape, potentially raising the public debt stock to over Sh13 trillion. As of December 2025, the total outstanding national government pending bills stood at Sh468.5 billion, comprising Sh368.9 billion owed by state corporations and Sh99.6 billion by ministries and state departments.

Additionally, the Treasury acknowledges that while non-guaranteed loans were contracted independently, they still pose potential implicit fiscal risks, further complicating the debt narrative. The agency reported that government-guaranteed debt amounted to Sh83.2 billion as of June 30, 2025, with various state-owned enterprises, including Kenya Electricity Generating Company (KenGen) and Kenya Airways (KQ), being prominent beneficiaries.

The Road Ahead

The IMF's call for a broader definition of public debt comes at a time when Kenya is grappling with mounting fiscal constraints and public scrutiny over tax fairness. The IMF has been on a mission to bolster public sector debt statistics in select African countries, funded by Japan, and has engaged with key stakeholders, including the Central Bank of Kenya and the Controller of Budget.

As the Kenyan government aims to navigate this complex financial landscape and secure vital support from the IMF, the outcome of this confrontation could have lasting implications for fiscal policy and governance in the country.