Kenya Set To Receive Additional Funds From The IMF

Kenya is on the brink of a significant financial boost, with a $1 billion disbursement expected from the International Monetary Fund (IMF) in the coming month. This injection of funds comes as a beacon of hope for the nation’s economy, which has navigated through a debt crisis earlier this year and is now displaying signs of recovery.

President William Ruto has expressed optimism in securing the IMF funds, underlining the positive trajectory of Kenya’s economy. This optimism follows the successful issuance of a $1.5 billion Eurobond in February, a move that helped allay market concerns surrounding a looming default on a maturing $2 billion bond in June.

However, despite the anticipation surrounding the IMF funds, questions loom large over whether IMF policies are inadvertently wreaking havoc on Kenya’s economic landscape.

International Monetary Fund has been accused of pushing Kenya into a cycle of escalating debt and unmanageable prices for essential commodities like food and fuel. The loans come with stringent conditions that worsen the crisis due to their harsh conditions, raising concerns for Kenyans.

An analysis of the situation reveals a grim reality on the ground. Over the past year, Kenyans have faced a significant increase in the cost of essential goods. Sugar, a staple in Kenyan households, has become 32% more expensive. Vegetables like carrots and onions have seen an even steeper price rise, exceeding 50%. Maize flour, another Kenyan staple, has doubled in price within the last two years.

These price hikes come at a time when the majority of Kenyans, nine out of ten, are earning the same amount or less compared to the beginning of the covid 19 pandemic. According to a recent Infotrak report, a staggering 73% of Kenyans are either experiencing severe financial hardship or struggling to make ends meet.

The ballooning debt-to-GDP ratio, currently standing at a staggering 68 percent, highlights the severity of Kenya’s debt crisis. Alarmingly, recent reports suggest that Kenya spent more on servicing its debt in 2023 than on all other items combined in the national budget.

Kenya Debt to GDP Ratio

In a bid to address this crisis, President Ruto’s administration turned to IMF loans, with the latest loan amounting to nearly $1 billion in January alone.

Kenya’s indebtedness to the IMF now stands at a significant $3.5 billion, a figure that has been steadily climbing over the years.

But, to receive these loans, IMF forces countries to prioritize exports and strict spending, worsening their economic situations. Kenya is no exception.

 

Upon taking office in September 2022, President Ruto immediately complied with a key IMF requirement by removing the subsidies on maize flour and fuel that previous governments had provided to citizens.

This resulted in a significant spike in the prices of these essential commodities. Fuel prices in Kenya reached record highs in the first half of 2023, surpassing 182.70 Kenyan shillings.

Furthermore, in line with IMF recommendations, the government completely eliminated subsidy spending on fuel during the first quarter of the financial year ending in September.

Additionally, in July 2023, the Ruto administration doubled the value-added tax (VAT) on fuel from 8% to a staggering 16%, another policy recommendation set forth by the IMF. This further contributed to record-breaking fuel prices in 2023, exceeding 200 Kenyan shillings.

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The repercussions of these policies were greatly felt on the streets of Nairobi, where mass protests erupted in response to the government’s adherence to these IMF directives. Tragically, these protests turned violent, resulting in casualties and arrests.

The public outcry eventually forced President Ruto to backtrack on certain measures, such as the reintroduction of fuel subsidies, drawing sharp criticism from the IMF.

The power of the IMF in Kenya is, unfortunately, nothing new. In 2011, the Mwai Kibaki government faced pressure from the IMF to modify the VAT system, including previously exempt fuel. However, according to critics, this policy change had severe economic consequences. Inflation surged, businesses struggled with rising costs, and overall economic growth slowed down.

Today, fuel in Kenya faces a staggering nine taxes, with the Ruto government having tripled the Petroleum Regulatory Levy. This isn’t the end of the story, however, as President Ruto reportedly plans to further increase the VAT on fuel.

Kenya Debt Servicing (ksh billions)

Unlike the United Nations, the IMF and the World Bank operate under a vastly different structure.

Unlike the UN’s principle of one country, one vote, these institutions function on a “one-dollar-one-vote” system, where wealthier developed nations hold the majority of voting shares.

The United States alone wields enough power within the IMF to effectively block any decisions it disagrees with.

This power imbalance is further solidified by the unspoken tradition of always appointing a European citizen as the IMF’s managing director.

This structure, focused on cheaper exports and resource extraction, primarily benefits Western consumers who gain access to cheaper imports, while African nations often see less return on their resources.

This is further illustrated by a report from Global Justice Now, which highlights how in 2015, Africa received $161.1 billion in aid, loans, and remittances. Yet, the continent simultaneously lost a staggering $203 billion through factors like tax avoidance, debt payments, and resource extraction, resulting in a net financial deficit exceeding $40 billion annually.

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