IMF's Role in Kenya's Economic Crisis and the Impact on Protests
Weeks since protests began, determined Kenyans continue going out to voice their frustrations with the government. When demonstrators first took to the streets in June to rally against proposed tax hikes, it was not only President William Ruto and members of parliament who came under fire. The protests have turned deadly, with at least 39 people killed, and Kenyan police clashing with protesters as unrest continues.
The anger towards the International Monetary Fund (IMF) and World Bank has been palpable, with accusations of causing the crisis and being labeled as tools of modern-day slavery. Graffiti denouncing the organizations is visible across Nairobi as protesters demand Ruto's resignation.
The IMF's role in the crisis stems from its history of providing loans with stringent conditions that often disproportionately affect the poor in African countries. In Kenya, the anger is fresh as Ruto's tax hikes were linked to IMF loans amidst a heavy debt crisis. However, critics argue that African leaders share blame for the situation, often opting for taxation instead of cutting costs.
Kenya's debt situation is dire, with external debt reaching $82 billion, a significant portion owed to China and multilateral institutions like the IMF and World Bank. Former President Uhuru Kenyatta's heavy borrowing for infrastructure projects, coupled with inflation pressures from COVID-19 and supply chain disruptions, has worsened the debt crisis.
The IMF came into the picture in April 2021, providing relief to Kenya with a 38-month program aimed at managing debt and fostering economic growth. The IMF-conditioned loans have led to tax hikes, subsidy cuts, and government waste reduction measures to increase revenue and reduce spending.
Despite some reforms pushed by Kenya, such as suspending subsidies and passing finance bills backed by the IMF, protests erupted against these measures. Ruto's rollback of tax hikes following violent protests showcases the government's responsiveness to public outcry.
In response to the protests, the IMF stated its goal of supporting Kenya to overcome economic challenges and improve its prospects while monitoring the situation. Ruto has announced new austerity measures to manage the budget gap caused by withdrawn tax hikes, including spending cuts and borrowing.
Moving forward, Kenya will likely submit a new revenue plan to the IMF, with investor sentiment hinging on the government's ability to implement necessary reforms. While challenges persist, the IMF's conditions and Kenya's response to the crisis will determine the country's economic trajectory in the coming weeks.
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