Why the anger over IMF loan is misguided

International Monetary Fund (IMF) headquarters in Washington, DC. [AFP]

Why is debate on International Monetary Fund (IMF) a trending topic?

Kenyans are upset with the Washington-based lender. The public is furious about the country’s runaway debt, and they took to social media to express themselves.

The IMF’s Facebook page was inundated by users asking the global lender to cancel a Sh253 billion ($2.34 billion) loan it has approved for the government.

Yesterday, the IMF finally broke its silence after an avalanche of messages, and answered frequently asked questions. But the institution, which has forked out financial assistance to more than 80 countries, mostly developing ones, has made its standpoint known before.

So is the public’s anger justified?

Well, most experts, while sympathising with the sentiments online, have said there is nothing wrong with the government having a programme with the IMF. It in fact improves the country’s credibility.

The IMF has previously called out Kenya before for its huge appetite for borrowing, but dropped its tough stance during the pandemic. The lender has noted that elevated debt levels at this time are allowed as the government is required to keep the wheels of the economy turning.

Does this mean the government can just keep borrowing money?

No, the IMF has previously asked Kenya to go back to the austerity path it had taken before the pandemic as soon as the negative effects of the Covid-19 outbreak wear off.

The logic behind increased borrowing by developing countries, including Kenya, was captured by Abebe Selassie, the director of the Africa department at IMF: “Advanced economies have had the space to do ‘whatever it takes’. In sub-Saharan Africa, no such luxury exists as countries struggle to do ‘whatever is possible’ with their scarce resources.”

What has fallen within the realm of ‘whatever it takes’?

As soon as Covid-19 hit the shores of rich countries, they aggressively locked down their economies to curb the spread of the virus. But they also released massive stimulus packages, which involved governments technically ‘printing money’ and handing it to households and businesses.

Most African countries could not ‘print’ money to help its citizens. Instead, they had the option of borrowing – but most had already exhausted borrowing limits. Yet, the closure of sections of the economy to meet health protocols were denying governments critical revenue sources.

This sounds like a pretty terrible situation to be in ...

Luckily, the IMF, World Bank, African Development Bank and other multilateral institutions have extended loans to the country to fight the effects of the pandemic. Kenya’s stock of public debt jumped by Sh1.07 trillion from March last year to Sh7.35 trillion in January this year.

Where exactly does the IMF’s sh253 billion fit in?

The country is set to receive the first instalment of Sh79 billion from the IMF by the end of June.

This has triggered grumbles from the public, angry at a government that has been accused of wasting and even stealing borrowed cash. There have been reports on how Covid-19 has inflated individuals’ bank accounts at the expense of a struggling public.

As frustrations approached a crescendo, Jefferson Murrey started a petition aimed at the IMF Executive Board, the fund’s highest decision-making organ, to cancel the loan because “previous loans to the Kenya government have not been prudently utilised and have often resulted in mega corruption scandals”.

Is there any chance the petition signed by more than 220,000 people as of yesterday will achieve its objectives?

David Ndii, an economist, described the IMF as a receiver-manager, given Kenya was already broke.

“Dear young #KOT, the IMF loan Kenya has taken is called a structural adjustment loan (SAP). It comes with austerity (tax raises, spending cuts, and downsizing) to keep Kenya creditworthy so that we continue borrowing and servicing debts. The IMF is not here for fun – ask older people,” Ndii posted on Twitter.

Joy Kiiru, an economics lecturer at the University of Nairobi, added that the petition to have the IMF loan cancelled is misguided.

“The point is you cannot run away from debt. Not when there is this pandemic, of which Kenyans are demanding more from their government. And you have every right to do that because the government is supposed to protect citizens,” she said, noting that cheap loans from the IMF and the World Bank are a better option than not getting any loans at all.

“People don’t understand the consequences of not taking loans... But above that, we should keep the government on its toes over the mismanagement of resources.”

Mbui Wagacha, also an economist and former advisor to the president, added: “A State cannot die, or cannot be allowed to die, but you cannot sweep mistakes under the bridge on the pretext that past mistakes are spilled milk.

“What you have to do is to take advantage of any new resources to reform public finances so that you don’t have any more milk spilling.”

He added that the hue and cry from the public illustrate the need for inclusion and participation.

“If I were in a position to respond to these people, it would be to show them proof that resources borrowed go towards the output of goods and services. That is the big elephant in the room,” said Wagacha. 

“I think the information is either lacking or there are questions unanswered. People suspect the worst - that the borrowing today is not producing goods for tomorrow, and generations coming tomorrow will have to pay for it without seeing the impact on their economy.”