Kenya: IMF Slaps Tough Terms on Loan Offer

Kenyan Shillings (file photo).
22 November 2020

The government is in urgent need of cash for its annual budget support and will therefore have to implement tough conditions imposed by international lending institutions, Treasury Permanent Secretary Julius Muia has said.

Dr Muia, in an interview yesterday, said Kenya is seeking a quick-disburse loan from the International Monetary Fund (IMF) to top up the public purse, which has taken a battering from the Covid-19 pandemic.

The IMF on Friday released a statement disclosing that tax, governance and monetary policy reforms are part of its ongoing debt negotiations with the government, stoking fears of a return to painful prescriptions of the past that have resulted in civil servant job losses and increased taxes.

"The reforms that are tied to IMF programmes are not exotic, they are formulated between the country and IMF. Kenya is negotiating a disbursing programme and discussions are still on going with IMF," said Dr Muia told the Nation without disclosing the amount that Treasury has applied for. He said Kenya needs the reforms suggested in the IMF loan package, but added that the conditions will not necessarily mean civil servant job cuts.

"A programme with the IMF is desirable for developing countries because it enables them to carry out ... reforms while benefiting from ... technical and financial support," said Dr Muia.

Reforms

The IMF, in its letter, pointed to the need for structural and governance reform for State Owned Enterprises.

"The outcome of these reforms in terms of staffing/ jobs is not a predetermined variable," said Dr Muia. Kenya received a Sh78.4 billion ($739 million) loan from the IMF in March to help cushion the economy from the adverse effects of the Covid-19 pandemic.

The IMF says its stringent conditions would help stabilise the economy. IMF officials held online talks with Treasury Cabinet Secretary Ukur Yatani, Central Bank of Kenya Governor Patrick Njoroge, Head of Public Service Joseph Kinyua, and other senior government officials ahead of the Friday statement.

Should Kenya accept the conditions, it could get a loan as soon as early next year, said the IMF. Yesterday, economists warned that the conditions could usher in a fresh round of job cuts in the public service and tax hikes; similar to what happened with the IMF's Structural Adjustment Programmes of the 1980s.

Mr Yatani had not responded to queries by the Nation by press time about the economists' warnings of the increased role that the IMF is playing in Kenya's economic management.

"The call for parastatal reforms definitely shall see a situation where some shall be consolidated and others rendered irrelevant," said Dr Samwel Nyandemo, a University of Nairobi Economics lecturer.

"Fiscal consolidation will definitely attract increased taxes and a corresponding increase in the cost of living," he added.

Belt-tightening

Last month, British charity Oxfam warned that 76 out of the 91 IMF loans negotiated with 81 countries, including Kenya since March 2020 pushed for belt-tightening that could result in "deep cuts to public healthcare systems and pension schemes, wage freezes and cuts for public sector workers such as doctors, nurses and teachers, and unemployment benefits, like sick pay."

"The IMF has sounded the alarm about a massive spike in inequality in the wake of the pandemic. Yet it is steering countries to pay for pandemic spending by making austerity cuts that will fuel poverty and inequality," said Chema Vera, Oxfam International's Interim Executive Director, adding: "These measures could leave millions of people without access to healthcare or income support while they search for work, and could thwart any hope of sustainable recovery. In taking this approach, the IMF is doing an injustice to its own research. Its head needs to start speaking to its hands."

Faced with revenue shortfalls amid Covid-19 disruptions and the push to complete projects ahead of President Uhuru Kenyatta's exit, the Treasury is expected to accelerate borrowing over the next two years. It has projected economic growth of less than 2.5 percent this year.

International institutions are making even lower growth forecasts. The economy has been battered by Covid-19, with tourism and small and medium-size businesses hit particularly hard. Treasury chiefs project, in a draft Budget Review and Outlook Paper, new loans of Sh1.87 trillion in the two years to June 2022 or Sh2.5 billion daily, pushing Kenya's debt to Sh8.06 trillion.

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