IMF warns Kenyans face job cuts, and increased taxes without IMF loan

The International Monetary Fund has warned that Kenyans face job cuts, higher taxes and more costly loans without IMF’s assistance to Kenyan Government. 

The IMF has issued a statement in response to public uproar over the government’s rising appetite for debt after it approved a $2.34 billion (Sh257 billion) loan to Kenya claiming that the bailout rescued the country from a debt crisis in the midst of the Covid-19 pandemic.

The loan, according to the IMF, would help Kenya deal with Covid-19 in the short term while also helping Kenya balance its books in the long run by replacing costly bank loans with concessional funding from bilateral and multilateral institutions.

“The arrangements with the IMF — together with additional financing from development partners and capital markets and G-20 support under the Debt Service Suspension Initiative (DSSI) — will help meet Kenya’s significant medium-term financing needs including to support their Covid-19 response. The alternative to this financing is much sharper fiscal consolidation or much more expensive borrowing on commercial terms,” the IMF 

Kenya’s revenue state

Kenya’s revenues have been hit by the pandemic, which has limited access to commercial loan markets. This has forced the country to seek direct budgetary assistance from the World Bank and the IMF.

Previously, during the previous regime, Kenya avoided direct budget funding from institutions such as the IMF and the World Bank with the majority of support coming in the form of project support.

Currently, Kenya’s cash flow is deterioraring with it’s revenues falling and worsening debt service obligations. This has forced Kenya to resort to these loans, which come with conditions.

Kenya’s Debt

Kenya borrowed Sh79.3 billion from the IMF last year (2020) and has now borrowed Sh257 billion from the new program.

In 2019, Kenya received $750 million (Sh75 billion) from the World Bank, a $43 million (Sh4.5 billion) loan to combat locusts, and $50 million (Sh5.3 billion) in Covid-19 emergency aid. 

Kenya also received a $1 billion (Sh106 billion) budget support facility to help handle the pandemic’s adverse effects last year. This year, Kenya is meant to borrow another $1.5 billion (Sh150 billion) from the World Bank.

Kenya was on the verge of a debt crisis even before the pandemic after President Uhuru Kenyatta’s administration borrowed at least Sh6.1 trillion to enact his manifesto in office. This is despite inheriting marginally more than 1.79 trillion in June 2013 from Former President Mwai Kibaki’s regime. 

Sourced from Business Daily and IMF Statements