Withdrawal of financial bill may not by itself end government worries in Kenya: Experts

NAIROBI, Kenya

The withdrawal of controversial Finance Bill 2024, which proposed significant tax hikes, may have quelled immediate public unrest, but it has not resolved the deeper financial issues facing the Kenyan government, according to financial experts.

The bill was a cornerstone of Kenya’s agreement with the International Monetary Fund (IMF), aimed at addressing the country’s fiscal challenges.

Ruto’s plan, supported by the IMF, to sign the bill which includes tax increases aimed at raising more than $2.7 billion in revenue for the government’s ambitious Ksh 4.2 trillion ($30.6 billion) 2024 – 25 budget.

The IMF had advised the government to proceed with the Finance Bill despite anticipating public protests.

The guidance was part of a broader strategy to meet stringent conditions set by the IMF under its multi-year program with Kenya, which includes a series of tax reforms to enhance revenue collection.

That idea led to the deaths of more than 20 Kenyans, leaving dozens nursing gunshot wounds, according to finance expert Robert Gitachu.

“What we are seeing right now is the product of a bigger picture. One of the things we need to understand is that the ultimate goal of the IMF is to ensure that the debt … whatever debt that we get from them needs to be paid back,” said Gitachu.

But does that come at the cost of human lives, Kenyan lives? Faith Kamau a financial analyst at Jomo Kenyatta University in Nairobi said the advice from the IMF raises critical questions about the true effect of financial policies on ordinary citizens.

“No international organization should tolerate or promote loss of lives for profit. There are broader issues at play. There is a delicate balance between fiscal responsibility and social stability, and I am sure the Kenyan government can find solutions that do not endanger the welfare of its people,” she said.

“While fiscal responsibility is crucial, it should never come at the expense of citizens’ well-being. The government must explore alternative measures that ensure economic stability without compromising the safety and lives of Kenyans.”

Kamau said: “Rejecting the Finance Bill doesn’t solve all the government’s problems.”

As Kenyans were dying from gunshots inflicted by police, IMF Director of Communications Julie Kozack said it is closely monitoring the situation.

“The IMF is closely monitoring the situation in Kenya. Our main goal in supporting Kenya is to help it overcome the difficult economic challenges it faces and improve its economic prospects and the well-being of its people,” she said.

Kamau took offense to those comments, arguing that it showed a lack of understanding and compassion for the real suffering of Kenyans.

“It’s clear that someone doesn’t care about human life when economic policies result in the deaths of innocent people. The IMF’s goals, while well-intentioned, seem disconnected from the harsh realities on the ground. The well-being of Kenyans should not be sacrificed for fiscal targets,” Kamau remarked.

Public outcry

Joseph Mburu Mwangi, a taxi driver, expressed his frustration on the streets of Nairobi.

“The IMF doesn’t understand our struggles. They are pushing for policies that make our lives harder. President Ruto should listen to us, not to foreign institutions that don’t care about our daily challenges,” he said.

Grace Nyambura Njeri, a 24-year-old shop assistant, shared similar sentiments: “It’s unfair for the IMF to pressure our government into making decisions that hurt the common people. We are already struggling to make ends meet. This Finance Bill was only going to make things worse for us.”

The IMF is set to conduct a seventh review of its multi-year program with Kenya, which includes new tax measures as part of conditions.

Upon completing the review, if approved by the IMF’s Executive Board, Kenya will have access to additional funds under the Extended Fund Facility (EFF) and Extended Credit Facility (ECF) arrangements. It would adjust the total remaining access to about $976 million, including zero-interest concessional resources.

Overall, the IMF’s financial commitment to Kenya during the EFF/ECF program will reach approximately $3.60 billion. Additionally, the completion of the second review under the Resilience and Sustainability Facility (RSF) will unlock an extra $120 million.

Implications of IMF’s 7th review

Haimanot Teferra, who is leading an IMF team, in a statement to the Kenyan government urging them to raise funds, said: “Enhancing tax compliance and increasing the efficiency of expenditures through public expenditure and wage bill reforms, state-owned enterprise restructuring, rationalizing unproductive current spending, and better targeting of subsidies and transfers while ring-fencing social and development spending will be key to enhancing the credibility of the consolidation strategy in FY(Financial Year) 2024/25 and the medium term.”

Kamau’s reaction to the review and conditions is optimism as long as there is care.

“While the additional funds from the IMF could provide some relief, the government’s challenge is to implement these conditions without causing further public unrest. Balancing fiscal responsibility with social stability will be crucial in the coming months,” she said.

There has been heightened security in the wake of widespread unrest in Kenya sparked by Finance Bill 2024.

The protests resulted in widespread looting and property damage throughout the capital. Ruto bowed to public pressure Wednesday and announced he would not sign the controversial bill.

Military vehicles and armored personnel carriers have been patrolling Nairobi with heavily armed soldiers assisting police in preventing chaos looting and vandalism.

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