IMF now calls for public buy-in on controversial Kenya programmes

IMF has acknowledged the need for a more collaborative approach to fiscal reforms. [iStockphoto]

The International Monetary Fund (IMF) has for the first time acknowledged the need for a broader public consultation and acceptance of its controversial structural adjustment and tax programmes in Kenya.

This comes weeks after the global lender’s efforts to work with the Kenya Kwanza government on fiscal reforms faced major setbacks and led to a social, political and economic fallout as the Finance Bill 2024 was withdrawn after sparking public unrest.

The implementation of the Finance Bill was part of the IMF-supported programme aimed at expanding Kenya’s tax net and increasing revenues to reduce Kenya’s debt vulnerabilities.

It was withdrawn by President William Ruto on June 26 following the protests.

The Bill had introduced several unpopular tax measures, including hikes in fuel levies and the introduction of new levies, which led to widespread protests across the country.  

The IMF acknowledged the need for a more collaborative approach, emphasising the importance of broad public consultation and support for the policies being discussed, sentiments also shared by President Ruto earlier. 

“With respect to Kenya’s broader situation, I think it’s important to say that the situation reflects broader challenges facing many of our low-income members,” IMF head of the communications department Julie Kozack said during a virtual press conference.

“Many of these countries are experiencing a funding squeeze, including on account of tighter global financial conditions and reduced availability of concessional financing.” 

She said policymakers in these countries, including Kenya, face a complex balancing act and have pressing spending needs in priority areas such as social programmes, health, and education.

“They’re managing rising public debt and debt service, and they also have the challenge of boosting domestic revenue. 

“For Kenya specifically, the goal of our IMF-supported programme is to help establish sound macroeconomic fundamentals, which are crucial for fostering sustainable and inclusive growth in the country.

“This includes initiatives to improve governance and transparency, and to ensure responsible use of public funds to safeguard social programmes and protect the most vulnerable members of society.”

The IMF acknowledged the need for broad public consultation and support for the policies being discussed, emphasising that they are committed to working closely with the Kenyan authorities to ensure the programme gains inclusive support.

“We remain committed to supporting Kenya in its effort to achieve inclusive growth,” the spokesperson said.

The IMF added it will work with the Kenyan authorities to find a balanced path forward, one that addresses Kenya’s fiscal challenges while also protecting the most vulnerable members of society.

Analysts have said the tax rollback means Kenya is likely to miss IMF targets although the government does not have debts that are due.

The IMF spokesman did not say when Kenya would access billions of dollars that were due shortly. 

Ruto on Thursday fired his entire Cabinet apart from Deputy President Rigathi Gachagua and Prime Cabinet Secretary Musalia Mudavadi, who also serves as foreign minister, bowing to pressure from nationwide protests that have created the biggest crisis of his two-year presidency.

The youth-led protests against planned tax hikes started off peacefully but turned violent, with at least 39 Kenyans killed in clashes with the police last month. 

Some demonstrators briefly stormed parliament, before Ruto abandoned the new taxes.

“I will immediately engage in extensive consultations across different sectors and political formations and other Kenyans, both in public and private, with the aim of setting up a broad-based government,” Ruto said.

The President has been caught between the demands of lenders such as the IMF to cut deficits and a hard-pressed population reeling from the rising cost of living.

Last week he proposed spending cuts and additional borrowing to fill the budget hole caused by the withdrawal of the tax hikes.

IMF said it remains committed to supporting Kenya in its effort to achieve inclusive growth.

“ At every programme of review, we do take the opportunity to assess developments and make adjustments considering the evolving circumstances.  

“And that’s exactly what we’re doing in our active and constructive discussion with the Kenyan authorities, and we’re confident that we will be able to find a balanced path forward with Kenya,“ Kozack said.