More pain for Kenyans in new Ruto, IMF loan deal
President William Ruto during a meeting with IMF Managing Director Kristalina Georgieva on the sidelines of COP27 in Sharma El-Sheikh, Egypt.
Kenyans should brace themselves for higher fuel prices, costlier loans and a raft of new tax measures in proposals by the International Monetary Fund (IMF) even as President William Ruto crafts his first budget amounting to Sh3.641 trillion.
The lender yesterday approved a Sh55.1 billion ($447.39 million) loan to Kenya paving the way for immediate release of the funds to the Exchequer for budgetary support, and showed great support for the government’s recent fiscal consolidation efforts.
The IMF has successfully pushed the government to drop the subsidy on fuel, and is now supporting a new State-backed pricing formula for fuel that will see fuel prices go up if implemented due to introduction of new cost components.
Treasury Cabinet Secretary Njuguna Ndung’u said the withdrawal of the subsidy would allow the government to only continue the subsidy on fertiliser to boost local maize production.
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“The government will eliminate the remaining unsustainable and consumption driven fuel subsidy by end of December 2022, but will continue to offer support to agricultural production through the fertiliser subsidy programme,” said Prof Ndung’u.
Further, the IMF is pushing the Central Bank of Kenya (CBK) to continue with its tightening of the monetary policy to curb inflation which will see a further increase in the cost of loans.
The Monetary Policy Committee (MPC), which is the CBK’s top decision-making organ on fiscal policy that sits every two months, last month raised the Central Bank Rate (CBR) by 50 basis points to 8.75 percent up from 8.25 percent.
Following the raise, banks have already started to increase their lending rates even as millions of Kenyans continue to rely on loans to meet their daily expenses.
The IMF has urged the CBK to further raise the base lending rate, and with the MPC slated to meet again next month, the rate could be further increased to rein in inflation which the IMF expects to peak in early 2023.
“The CBK’s monetary policy stance is welcome. Further tightening would limit second-round effects and keep inflationary expectations well-anchored while supporting external adjustment,” said IMF Deputy Managing Director Antoinette Sayeh.
The IMF says these interventions will help lower the financial burden on the Exchequer ahead of Dr Ruto’s first budget, and that strong performance of tax revenues in the last fiscal year has supported resilience and cushioned the initial impact of global shocks on households and businesses.
But the new budget is a litmus test for Dr Ruto and will show the Head of State’s priorities even as he begins to shape his legacy. Thus, Dr Ruto will be faced with a tough decision on how to balance the scarce revenues with growing spending needs including debt servicing, a rising wage bill, social welfare programmes and development projects.
Featuring heavily will be fiscal and policy interventions in line with the IMF’s recommendations, including new tax revenue targets that could see the introduction of new taxes and scaling up existing ones to fund priority programmes.
