By Elsa N Kariuki
No matter how small, when civil society and community-based organisations apply for grants, the process is rarely forgiving. Before a single dollar is released, funders demand a lot of paperwork, specifically audited financial statements, sometimes going back years. They usually need concrete proof that the organisation can account for every shilling. A weak audit, evidence of mismanagement, or worse, embezzlement, can trigger clawbacks or even make the organisation permanently blacklisted. In development finance, trust is usually conditional.
Over the past decade, Kenya’s sovereign borrowing from the IMF has accelerated, even as official audits repeatedly document misappropriation, abandoned projects, and fragile spending controls. Reports from the Office of the Auditor-General have become a catalogue of governance failures. According to the Ethics and Anti-Corruption Commission (EACC), Kenya loses approximately one-third of its national budget to corruption annually, about KES 608 billion (roughly 7.8% of its GDP), mostly stemming from procurement fraud and public sector graft. Yet Kenya is the world’s seventh-largest IMF borrower as of 2025, with outstanding loans of KES 519 billion.
Even as audit concerns resurface year after year and parliamentary oversight stalls, public frustration over taxes, debt and corruption has grown increasingly visible. Still, the IMF continues to extend financing to the Kenyan government. Why?
Why are small community organisations required to prove financial discipline before receiving a grant, while a government with a long paper trail of audit red flags continues to access multibillion-shilling loans? What is the IMF monitoring in Kenya, and what do they define as “success”? If repeated adverse audits, stalled projects, and public unrest do not interrupt lending, what would?
At stake is not only Kenya’s debt burden, but a bigger question about how global financial institutions measure risk, accountability, and credibility when the borrower is a sovereign state rather than a village NGO.
How IMF and World Bank Financing Works
Unlike the World Bank, which finances specific development projects, the IMF intervenes when countries are under acute economic strain, extending short- to medium-term loans aimed at stabilising the broader economy. That assistance is conditional: to access IMF funds, governments must commit to targets on spending, debt, and revenue, as well as policy changes designed to ensure repayment. In Kenya, those targets have increasingly dictated fiscal decision-making, tightening the government’s room to manoeuvre. The result has been a steady push to raise revenue and shrink deficits, whether through the tax-heavy proposals of the Finance Bill 2024 or the sharp public spending cuts embedded in the Finance Bill 2025.
Although interest rates are largely uniform within each lending facility, countries that borrow larger sums, over longer periods, or under higher-risk programmes end up paying more through automatic surcharges and fees. IMF rules impose these surcharges once outstanding credit exceeds 187.5 per cent of a country’s quota, rising further beyond 300 per cent, and increasing with time. Kenya, under IMF programmes since 2021, has crossed that threshold. Its borrowing therefore attracts not just the base rate, but additional costs tied to prolonged and heavy reliance on IMF support. For many Global South countries like Kenya, this pattern is common, unlike wealthier states in the West, which rarely borrow from the Fund at all.
The inequality, then, lies less in the headline interest rate than in frequency and vulnerability. Over time, poorer countries often pay more; not because rates are higher on paper, but because they borrow repeatedly, under stress, and for longer periods.
Does the IMF Check How The Money Is Spent?
Oversight by international lenders exists, but it has clear boundaries. The IMF’s audits centre on the big picture: whether a country’s finances are broadly stable and whether economic risks are mounting. Its regular Article IV consultations, says economist Ken Gichinga, are meant to assess a government’s ability to repay its debts, not to follow every shilling once it enters the system.
There is no standing mechanism to forensically trace all public spending at the national level. IMF scrutiny remains largely macroeconomic, while World Bank audits tend to examine compliance with procedures rather than the granular flow of money. Even in the absence of outright accounting manipulation, that structural blind spot helps explain how funds can go missing or projects falter, all while appearing properly monitored on paper.
The IMF does lend to governments it knows are weakly governed without tracing how every shilling is spent. Instead of forensic oversight, it relies on policy conditions designed to secure repayment, plus interest. At an institutional level, the IMF’s questions are narrow and consistent: is the government raising enough revenue, can it service its debt, and does the macroeconomic framework appear credible? If the answers are broadly yes, lending continues. What happens inside procurement systems or line ministries matters far less, unless it threatens repayment or triggers a wider political or financial crisis. This helps explain why corruption in Kenya, however well documented, has not halted IMF engagement. Misuse of funds alone is not a red line. Public backlash and the social strain of austerity have not proved a deterrent either, as seen in the Fund’s continued influence over revenue measures in the Finance Bill 2024 despite widespread opposition.
So, Why Hasn’t The Abundant Evidence of Corruption in Kenya Stopped The Lending?
In the 2023/24 county audits, the Auditor-General found 688 projects delayed, 249 stalled or abandoned across 33 counties, and 40 completed facilities left unused, including clinics, schools, markets and roads. Together, those stalled and abandoned projects were worth more than KES 20 billion. At the national level, Kenya paid about KES 6.6 billion in penalties on external loans it had already signed but failed to use in time. A special audit from the financial years 2020/21 to 2023/24 of education spending uncovered 14 schools that did not exist but still received KES 16.6 billion in capitation funds. The same audit cycle raised questions about KES 2.5 billion paid to donor-funded projects with inadequate documentation. And yet these numbers have not fazed these global lenders. In the first quarter of the current financial year 2025/2026, 20 out of the 47 county governments spent nothing on development. Why does this evidence not trigger a reckoning among Kenya’s international lenders?
Economist Ken Gichinga offers a blunt explanation: for the IMF, the biggest priority is not whether money was well spent, but whether the government can raise enough revenue to meet its obligations. From that perspective, audit failures and stalled projects matter less than repayment capacity. As the IMF itself explains, its loan conditions are designed to “safeguard IMF resources by ensuring that the country’s finances will be strong enough to repay the loan”, a clear articulation that its priority is financial sustainability, not unrestricted aid.
A popular argument is that in a dog-eat-dog world, developing countries’ problems are primarily self-inflicted, caused by corruption and poor governance. That the IMF is a not-for-profit organisation but they are also not a charity. They simply enforce rules any lender would, and that conditionality is justified because it is someone else’s money and poorer countries are not entitled to it. U.S. Treasury Secretary Scott Bessent defended the core missions of the IMF and World Bank, saying the IMF “has no obligation to lend to countries that fail to implement reforms” and urging both institutions to stick to their foundational roles, a formulation that underscores that lending is conditional and contingent on policy compliance rather than entitlement. While it is true that the IMF themselves as technical lenders enforcing rules to protect their resources, historical evidence shows that this view oversimplifies how their programmes actually operate and the effects they have on borrowing countries.
Blaming corruption and poor governance alone for enduring economic crises tells only part of the story. It obscures how international loan structures and global market rules collide with weak state institutions, often with destabilising effects. IMF programmes, especially those rooted in austerity and structural adjustment, have repeatedly imposed steep social costs, deepening inequality and straining health systems and labour markets in African countries such as Kenya, Ghana, and Zambia.
Crucially, IMF loans do not, by themselves, fix the governance failures that magnify these harms. Their effectiveness improves only where corruption has already been reduced. Where it has not, programme outcomes weaken and human development falters. In reality, the IMF’s lending framework cannot substitute for functioning institutions; it relies on domestic governance capacity to convert financial support into lasting social and economic progress.
On the ground, the IMF’s lending model resembles a commercial loan more than a grant relationship. Its central concern is not how every shilling is spent, but whether the borrower can pay. Misuse of funds does not, on its own, stop lending unless it threatens repayment or macroeconomic stability. Unlike grant-making institutions, the IMF does not walk away because money is poorly used. It stays engaged through policy conditions designed to keep debts current. As Gichinga puts it, for the IMF it is “strictly business”, and not a development charity.
IMF Austerity Can Be Self-Defeating
The IMF’s case for austerity is internally logical. When a country is borrowing heavily, running deficits, and struggling to pay its debts, tightening the budget is meant to restore confidence. Spend less, collect more, stabilise the currency, reassure lenders, and make repayment possible. In theory, it looks disciplined. In practice, it can unravel.
The problem is timing. Austerity is often imposed when an economy is already weak. Cutting government spending at that moment pulls demand out of the economy. Contractors lose state-funded work, businesses see fewer customers, layoffs begin to spread, public services deteriorate as agencies cut back and households absorb the shock through reduced spending power. When activity slows, tax revenue falls, sometimes faster than spending does. The very goal of austerity, improving public finances, becomes harder to reach and even counterproductive.
Even the IMF has acknowledged that in past programmes it underestimated how much fiscal tightening would hurt growth. Debt servicing absorbs a larger share of public resources, forcing governments to cut again or look for new taxes. The result is a feedback loop: austerity shrinks the economy, shrinking the tax base, which then justifies more austerity. This helps explain why countries remain trapped in IMF programmes for years. The policies stabilise the immediate crisis, but they also make it difficult to generate the growth needed to exit dependence on borrowing.
Conditionality does not usually tell governments exactly what law to pass. What it does is set fiscal targets; how much revenue must be raised, how large the deficit can be, and how fast debt must fall. Once those targets are fixed, the range of political choices shrinks dramatically.
In Kenya, under IMF programmes, the government committed to raising revenue and reducing deficits. But when growth slows and borrowing costs rise, those commitments become more urgent. The fastest way to meet them was not long-term industrial policy or structural reform, but taxes that could be collected quickly. That pressure shaped the Finance Bill 2024, which proposed a raft of new and expanded taxes. When public opposition forced the government to retreat, the fiscal problem did not go away. The hole still had to be filled. The response shifted to spending cuts, administrative measures, and renewed efforts to extract more revenue elsewhere, including through tighter enforcement and compliance in the Finance Bill 2025. The government is formally sovereign, but practically constrained.
What’s more is that IMF loans often help countries pay other debts. It is a core function of IMF lending and the IMF justifies this as crisis management, which can seem like the Fund helps state governments rob Peter to pay Paul. Even when framed as crisis management, using IMF loans to service existing debts shifts the burden rather than resolving it. For Kenyan taxpayers, this means new borrowing does not fund hospitals, schools, or infrastructure, but is used to keep older obligations current. The immediate crisis may be stabilised, but the underlying debt remains, often larger and more expensive than before.
Over time, this entrenches dependency. The state becomes better at servicing debt than at delivering development. The tax system has become increasingly self-consuming: out of every 10 shillings of tax revenue collected, 6.80 shillings goes towards debt servicing, leaving citizens to pay more for fewer services. Yet from a lender’s perspective, the system appears to be working, because repayments continue and macro targets are broadly met.
Ultimately, when public funds are misused, the cost is rarely borne by lenders but largely absorbed by citizens. In Kenya, fuel was once exempt from value-added tax (VAT), but revenue-raising reforms gradually pushed VAT from 0 to 16 per cent over roughly a decade, with proposals to raise it further today still on the table. Yet when borrowed money is misappropriated or projects stall, the public pays twice: first through lost benefits, and again through the taxes required to repay debts that did not improve their lives. If international lenders continue to prioritise repayment capacity while tolerating persistent misuse of funds, the risk is sociopolitical. When people ask why lenders keep engaging despite audit alarms, part of the answer is that lenders can tolerate a lot of governance weakness if repayment capacity is protected. The quickest lever for repayment capacity is revenue, and the quickest route to revenue is usually the taxpayer. The pressing question is whether a model that prioritises repayment above all else, even the people, will ever deliver the growth needed to make itself unnecessary.
This piece draws on insights from Ken Gichinga; Chief Economist at Mentoria Economics</em