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The UN Trade and Development (UNCTAD) has classified nations into two categories, i.e., the Global North and the Global South. While the ‘North’ consists of the world's advanced countries, the ‘South’ consists of emerging markets and the least economically developed countries, which face high poverty levels combined with a huge population. Africa, in this regard, has the highest number of countries that fall under this category.
Within Africa, Libya, Eritrea, and Botswana did not borrow any money from the International Monetary Fund (IMF) since its inception. Nevertheless, in 2024, Kenya which is one of the largest borrowers from the IMF witnessed massive civil unrest over the introduction of its Finance Bill 2024, which had the backing of the institution.
Why is Kenya in shambles?
Kenya’s economy is at its worst point, with sovereign debts piling over two-thirds of its GDP ($60 billion), breaking the target of 55% set by the Bretton Woods Institutions. The annual percentage rate eats up over one-third (37%) of its gross income.
Meanwhile, the IMF's recommendations for improving Kenya's economic fortunes include: (a) devising a tax regime focused on collecting higher revenues; and (b) reducing budget deficits. The Finance Bill 2024 also proposed a 16% value-added tax (VAT) on essential food items, unique financial and forex transactions, and a 3% cess on car ownership. A revenue estimate of $2.7 billion was also set for FY 2024–25.
Before Ruto’s presidency, Uhuru Kenyatta ruled the country between 2013 and 2022, with the period bearing witness to massive borrowings of commercial loans for infrastructure projects from Chinese investment holding firms. Due to the specific nature of these loans, higher interest rates were levied, deeply pressurizing the Kenyan economy.
Over one-eighth of the nation’s $80 billion foreign debt is obligated to China, while the rest is compelled to the USA, Saudi Arabia, and other global financial lending institutions. Kenya approached the IMF in April 2021 for a fresh round of funds, and they signed an agreement to release $4.54 billion in tranches (Extended Fund Facility and Credit Facility) over the next three years and two months. The onset of COVID-19 further dwindled the economic prospects of Kenya.
However, the scenario was not always the same. In the mid-2000s, Kenya attained a stable political balance and was projected to grow 8% annually. What destroyed the nation entirely was corruption and the siphoning of funds meant for the creation of basic infrastructure. By 2022, Kenyata had stepped down, and Ruto had become president.
From 2023 onwards, the IMF proposed a series of austerity measures that included cutting down expenditures on public health and education by six times for every dollar, provided as aid. To extend their commitment to climate change, they directed the Kenyan government to introduce progressive taxes on products that degrade the environment, which included essential items such as sanitary pads, diapers, and mobile phones.
The Aftermath
The final week of June 2024 saw massive protests over the newly proposed tax hikes, with youngsters participating in greater numbers and advocating reforms and changes in administration. Despite the protest being suppressed, by mid-July 2024, President Ruto had sacked the majority of his cabinet ministers and assured the public that reform was underway. Also, the proposal to implement the Finance Bill 2024 was withdrawn.
Meanwhile, the IMF has also conveyed its deepest regrets about how the political turmoil has created distrust in the minds of Kenyan citizens about the institution. Subsequently, they have reiterated their commitment to assisting Kenya in overcoming the formidable economic obstacles it faces, enhancing its financial opportunities, and increasing the welfare of its populace while steering the country towards strong, long-term, and equitable prosperity.
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