Weeks after protests began, Kenyans remain determined to take to the streets to express their frustration with a government that has sought to raise taxes, causing the cost of living to rise for millions of citizens.
But when protesters first took to the streets last June to protest against proposed tax increases, it wasn’t just President William Ruto and members of parliament who came under fire.
In the protests that later turned bloody, banners were raised condemning the IMF and the World Bank, which are accused of causing the crisis. One banner read: “IMF and World Bank, stop modern slavery.”
Throughout the capital, Nairobi, graffiti has appeared condemning the organisations, even as protesters continue to demand Ruto’s resignation.
In this report, we highlight 6 points that explain the relationship between the IMF and external debts in the Kenyan crisis:
1- What is the role of the International Monetary Fund in the crisis, and what did Kenya request? And what did the Fund do?
For many years, multilateral lenders, especially the IMF, have had a bad reputation in African countries for their harsh conditions on desperate countries that critics say have always been disproportionate because it has been the poor who have been hurt.
African leaders, including Ruto, have also criticised international lenders for what they say are Interest rates Disproportionately high compared to other developing countries.
In Kenya, the anger is fresh because the tax hikes now being withdrawn by the president as well as similar legislation passed in 2023 are tied to IMF loans, as the government reels under a severe debt crisis.
Domibi Oluwole, an economist at data analytics firm Steers, told Al Jazeera that while some of the complaints against the IMF are valid, African leaders are often to blame.
High interest rates are often due to a history of default, she added, and the tough conditions imposed by lenders such as the International Monetary Fund have also been applied to troubled countries elsewhere, such as Greece, which went through an economic crisis in 2009 and was partially bailed out by lenders, but African leaders often rely on options that hurt the majority.
“African leaders are traitors,” she continued. “We all know that IMF loans come with strings attached, but some leaders, when asked to raise revenues, choose to tax rather than cut costs. Then they blame the IMF.”
2- What is the debt situation in Kenya?
When Ruto took office in August 2022, Kenya was already in crisis. Its external debt stood at about $62 billion, or 67% of its GDP.
Former President Uhuru Kenyatta had borrowed heavily from commercial lenders and countries such as China to finance massive infrastructure projects, including a railway linking Nairobi to the coastal city of Mombasa, as well as 11,000 kilometres of paved roads.
Most of these loans were commercial, which meant they had high interest rates. Meanwhile, the infrastructure failed to generate the expected revenues.
Inflationary pressures from COVID-19 also persist, compounded by supply chain disruptions in Kenya’s agriculture.
All of these things combined meant that food and general living costs would rise in 2022, as would Kenya’s debt as interest accrued.
Currently, Kenya’s debt stands at $82 billion, of which about $8 billion is owed to China.
Other creditors include the International Monetary Fund, the World Bank, the United States and Saudi Arabia. The debt also includes domestic borrowing. More than half of government revenue goes to repaying debt.
3- When did the IMF come into the picture?
In April 2021, Kenya under Kenyatta and then-Deputy President Ruto struck a bailout agreement with the International Monetary Fund. This came in the form of a 38-month programme that the fund said would help Nairobi manage its debt and create an economic environment conducive to needed private sector investment.
Under these programmes, Kenya is set to receive $3.9 billion in financing. A separate climate fund worth $542 million has also been approved.
The IMF made the loans conditional on raising taxes, cutting subsidies and reducing government waste, measures it said would increase government revenues while cutting spending.
The measures began last year, and Ruto has made the IMF program a priority since 2022. The disbursements are based on periodic reviews to gauge how well the government is implementing certain reforms. The last review, in January, revealed $941 million.
4- What IMF reforms has Kenya implemented?
After taking office, Ruto suspended fuel and fertiliser subsidies as part of the programme. However, fuel subsidies were reinstated in 2023 after protests erupted.
The 2023 Finance Bill also received support from the International Monetary Fund.
The bill, passed in June 2023, imposed a 2.5% housing tax on workers and raised the value-added tax on fuel from 8% to 16%.
Protesters took to the streets to protest the bill last year, although turnout was not as high as in June.
The now-withdrawn 2024 Finance Bill, along with the tax increases, had IMF backing. The programme was set to generate $2.7 billion.
Analysts said Kenya still needs to bridge the gap to meet some targets under the IMF programme, whose loans helped the country avoid defaulting on a $2 billion Eurobond maturing in June.
5- How did the IMF respond to the protests?
Ruto backed down on the proposed tax increases on June 27, a day after protests turned violent. Police opened fire on protesters who broke through barricades to enter parliament, sending MPs fleeing.
Ruto said he would not sign the bill into law and that his government would listen to the people.
As the country descends into chaos, the IMF said it is monitoring the situation. “Our primary goal in supporting Kenya is to help it overcome its difficult economic challenges and improve its economic prospects and the well-being of its people,” said Julie Kozack, the fund’s communications director.
According to Reuters, Ruto spoke with IMF chief Kristalina Georgieva in the days following the protests, although it is not clear what they discussed.
Diplomatic sources told the agency that there is agreement among major donors that the IMF needs to show flexibility on Kenya’s targets.
Another review is scheduled for this month. In the January review, the IMF said the Kenyan authorities had made progress on reforms but were slow to collect taxes.
6- What next?
Analysts expect the IMF to ask Kenya to submit a new revenue plan. Ruto announced new austerity measures on Friday that are expected to plug the gap left by the withdrawal of the tax bill.
The Kenyan president said his government would secure the funds by cutting 177 billion shillings ($1.39 billion) from the budget for the fiscal year that began in July and borrowing about 169 billion shillings ($1.31 billion).
He added that 47 state companies would be dissolved, the number of government advisers would be halved, non-essential travel by public employees would be suspended, and the budgets of the wives of the president and vice president would be cancelled.
“I believe these changes will put our country on a path towards economic transformation,” Ruto added.
Investor sentiment has been dampened as protests have escalated in recent weeks, with the Kenyan shilling down 0.29% against the dollar.
But if the government continues with these spending cuts, the currency is likely to rebound again in the coming weeks, economist Oluwole said.
“They are now doing everything they were supposed to do before,” she said. “When the IMF gives you conditionality, you don’t need to pass most of it on to the people and you know the situation in your country.”
