IMF likely to approve Kenya's new fiscal plan in August - Mudavadi

 

Prime cabinet secretary Musalia Mudavadi 

Kenya has presented a fresh fiscal plan to the International Monetary Fund (IMF) after weeks-long nationwide protests forced President William Ruto to withdraw the Finance Bill, 2024.

The controversial bill which has since triggered a wave of protests in the country proposed several new tax measures that could have seen the government collect at least Sh347 billion to fund the 2024/25 budget. 

The proposed law aligned with the IMF's fiscal conditionalities to Kenya, especially on domestic consolidation, aiming to cut the country's high debt appetite. 

Last week, the National Treasury outlined plans to cut 2024/25 spending by 1.9 percent and widen the fiscal deficit to 3.6 percent of GDP, necessitating more borrowing. 

East Africa's biggest economy now plans to fund a Sh3.8 trillion budget for the year that began July 1 down from the initial Sh4.2 trillion.

Prime Cabinet Secretary Musalia Mudavadi who appeared before the Parliamentary Budget Committee on Monday said Kenya expects the fund's board to review it for approval at the end of August. 

"It is our desire and hopes that Kenya's proposition will receive favorable consideration so that we can move beyond the challenges that we are facing," Mudavadi said. 

Mudavadi's sentiments are coming at a time when Kenya's relationship with the international lender is under sharp scrutiny, with the public blaming the latter for pressuring the government to increase taxes. 

The IMF's post-Covid-19 recovery programme worth $3.8 billion (Sh490.2 billion) approved in 2021 ends in April next year.  

Last week, the Institute of Economic Affairs (IEA) accused the Fund of shifting its goal post on Kenya's fiscal reconstruction, adding more conditions that are harmful to the economy. 

The economists' body has for instance chided the international lender for increasing demands from an initial 26 to 36 in the sixth review, terming the increment as unfair.

The report dubbed 'And Then, Floods': A Critical Macroeconomic Assessment of IMF Conditionality on Kenya, 2021-present also accused the IMF of cheering on Kenya as it proposed the shilling and accumulated more external debt. 

According to the institute, targeted fiscal adjustment should have been front-loaded to let monetary policy drive exchange rate correction but instead, it was backloaded and the ultimate target balance was well above best practice.

"Despite the given rationale for rising revenue ratios to support government functions, they have been primarily in service of those sub-best-practice primary balance targets and have yielded chronic instability in tax structures.

by VICTOR AMADALA