- The IMF issued a warning to African governments in its October 2026 Regional Economic Outlook report on fiscal policy
- The fund cautioned against using broad fuel subsidies to cushion citizens from commodity price shocks, citing unsustainable fiscal costs
- The IMF urged countries receiving windfall revenues from oil, gold, or copper exports to repay debt rather than fund new spending
Search option is now available at TUKO! Feel free to search the content on topics/people you enjoy reading about in the top right corner ;)
TUKO.co.ke journalist Japhet Ruto has over eight years of experience in financial, business, and technology reporting, offering insights into Kenyan and global economic trends.
The International Monetary Fund has warned Kenya and other African governments to move away from broad fuel subsidies and unsustainable borrowing, calling instead for targeted support and disciplined fiscal management.
Source: Twitter
The warning appeared in the IMF's October 2026 Regional Economic Outlook report, which set out detailed guidance on how sub-Saharan African governments should handle fiscal policy amid shifting commodity prices and constrained public finances.
What was IMF's guidance on commodity windfalls?
The Fund advised that countries benefiting from temporary revenue windfalls linked to oil, gold, copper or other commodity exports should direct the bulk of those gains towards clearing arrears or retiring expensive debt, rather than locking in permanent expenditure increases or delaying structural reforms.
Where governments face deteriorating terms of trade with limited room to manoeuvre, the IMF recommended a combination of spending reprioritisation, efficiency improvements and domestic revenue mobilisation, with essential services and vulnerable households shielded from cuts.
The report was direct on the limits of broad-based subsidies, stating that "recurrent shocks cannot be met indefinitely by broad subsidies or cuts to high-return investment."
An illustrative comparison covering 19 countries found that generalised fuel price smoothing can cost approximately 4% of GDP, a burden the IMF described as fiscally unsustainable over time.
Targeted support over blanket subsidies
The IMF argued that support for low-income households should be properly funded and narrowly targeted so that it protects vulnerable people at lower fiscal cost without distorting the price signals that encourage energy conservation and substitution.
Existing automatic stabilisers and scalable social protection systems should serve as the first line of defence, the report said. In countries where such systems remain underdeveloped, governments were advised to rely on the narrowest feasible proxies, including school feeding programmes, geographically targeted transfers or support directed at vulnerable farmers, while simultaneously strengthening social registries and payment infrastructure.
"Any temporary measures such as fuel price smoothing, tax relief or subsidies should be transparently budgeted, capped and time-bound, with credible exit strategies in place," it stated.
The fund stressed that losses must not be allowed to accumulate off-budget within state importers, utilities or transport companies.
On borrowing, the IMF said any new debt must remain consistent with debt sustainability frameworks. It also noted that grants and concessional loans should complement, not replace, domestic revenue and expenditure reforms, and should be used to protect priority spending and smooth adjustment.
How did Kenya overtake Ethiopia?
In other news, Kenya overtook Ethiopia in 2025 to regain its title as East Africa’s largest economy, ending Ethiopia’s five-year reign.
Ethiopia’s dollar-denominated GDP fell by nearly 40% after the country eased exchange-rate controls to secure a $3.4 billion IMF loan.
The IMF projects Kenya will maintain its regional lead and could surpass Angola by 2028 to become Africa’s sixth-largest economy.
Source: TUKO.co.ke