IMF’s reputation under threat from protests
The demonstrations have been as deadly as they have been dramatic – at least 23 people have died in the past week amid nationwide protests in Kenya against government plans to increase taxes.
Faced with such fury, the government of President William Ruto has been forced to withdraw a finance bill that proposed a series of tax rises on necessities including cooking oil, napkins and energy worth US$2.3 billion (NZ$3.8b). But the focus has not been solely on the government in Nairobi.
As it celebrates 80 years since its founding, the International Monetary Fund (IMF) has been thrown into a reputational crisis. Kenyan protestors have honed in on the fund's role in demanding measures to stabilise the country's public finances. Public unrest didn't merely arrive on its doorstep; demonstrators staged a sit-in at the IMF's offices in the capital.
Kenya has been one of the fund's biggest debtor countries in recent years. It has suffered from a combination of spiralling debt costs, declining tax revenues and a weakening currency, but, according to Jason Tuvey, deputy chief emerging markets economist at Capital Economics, Ruto “lacks the political capital to push through austerity measures, particularly steps to raise the tax take that the IMF has been pushing for”. Something shown all too clearly by the events of recent days.
The IMF has been here before. The social unrest, led by younger Kenyans, has echoes of a backlash in the 1990s and 2000s, when the IMF was seen by critics as a conveyor of neoliberal orthodoxy, administering painful structural reforms and austerity on debt-stricken nations. It became a lightning rod for protestors during the Asian financial crisis in 1998, when it demanded sweeping budget cuts and an overturning of local economic models in return for emergency aid. In the 2010s, the IMF was part of the “troika” of lenders to eurozone countries such as Greece, Ireland and Spain that led President Macron of France to claim there was “no place” for the lender in European affairs.
Now Kenya's plight has refocused attention on the IMF at a time when scores of low and middle-income countries in Africa are suffering from a “brutal financing squeeze”, according to Abebe Aemro Selassie, the fund's director for the continent.
The fund responded to Kenya's protests by saying that it was “deeply concerned” about the unrest. “Our main goal in supporting
Kenya is to help it to overcome the difficult economic challenges it faces and to improve its economic prospects and the wellbeing of its people,” it said. Meanwhile, the fund's impending sign-off of another €300 million (NZ$530m) tranche of aid is likely to be delayed as it works with Kenya's government to review the terms of its programme. Kenya has been receiving IMF loans since 2021 as part of an emergency credit facility that is due to expire next year.
Kenya's budget deficit is now on course to grow to 5% of GDP next year without the finance bill, compared with a projected 3.2% if the austerity measures had been passed, according to S&P Global. The credit rating agency said Kenya had the fifth largest debt interest servicing bill in the world, eating up about 30% of all government revenues. “We anticipate the IMF may work with the authorities to recalibrate select programme targets, allowing for a more gradual path to fiscal consolidation,” it said.
In recent years, the IMF has tried to detoxify its image with debtor nations, offering a more collaborative loan programme rather than dictating terms to governments.
Mark Sobel, a former US Treasury official and US government representative at the fund, said it was being unfairly blamed for Kenya's “deep-seated and longstanding fiscal woes that are the country's own doing.” – The Times