IMF pill too bitter to swallow for Kenya ahead of 2021/2022 budget

Treasury CS Ukur Yatani

By The Weekly Vision

Kenya is yet to embark on wide-ranging privatisation of state parastatals and job rationalisation (read job cuts in the civil service), as demanded by IMF when it extended a Covid- 19 related emergency loan.

With only days to the 2021/2022 national budget expected by June, Treasury CS Ukur Yatani is warning that the IMF pill prescribed for the loans is too “bitter” for the country! He says already burdened by galloping inflation, and widespread unemployment, job cuts in the public service could trigger civil unrest.

Kenya’s huge appetite for loans has alarmed donors as the country enters into a staggering Kshs 9 trillion external debt, the highest since the country got independence from colonial Britain in 1963

Yattani has kept warning county governments to reduce public wastage as the government sinks deeper into debts. He said borrowing to pay salaries and allowances for the bloated bureaucracy was a step in the wrong direction. Early this year as doctors and medics went on strike demanding better pay and risk allowances, he announced that the country was broke!

Kenya’s huge appetite for loans has alarmed donors as the country enters into a staggering Kshs 9 trillion external debt, the highest since the country got independence from colonial Britain in 1963.

While agreeing on a $2.4 billion (Sh262.56 billion) loan for budget support to weather the coronavirus economic hardships, the IMF wants the Kenya government to privatise all state corporations by selling them off. IMF also wants a stop on public wastage and is demanding for an overhaul of the devolved system of 47 counties under governors who are performing duplicated roles.  IMF argues that parastatals have become conduit for high level graft, and are causing unnecessary drain on limited public resources that should go in creating jobs, infrastructure and hospitals.

IMF announced it had reached a deal with Nairobi for the 38-month credit facility whose disbursement will start before June 2021. Kenya had sought the loan from IMF in December 2020, making it the second following the $739 million (Sh79.3) billion received in May, that Kenya applied to help it respond to the economic shocks caused by the Covid -19 global pandemic.

The money will be spent on the second phase of Kenya’s Covid-19 response to fill budgetary deficits as the country seeks cash for development projects. The loan is the second extended to Kenya by the Bretton Woods institution since the outbreak of the Covid-19 last year amid the economic fallout of the coronavirus that hurt revenue collections.

“I am pleased to announce that the Kenyan authorities and the IMF mission team have reached agreement on economic and structural policies that would underpin a 38-month program under the EFF and ECF arrangements for about US$2.4 billion,” Mary Goodman of IMF said.

“The staff-level agreement is subject to IMF management approval and Executive Board consideration, which is expected in the coming weeks.” This signals the gravity of the country’s rapidly deteriorating cash-flow situation that is marked by falling revenues and worsening debt service obligations.

Revenue collection in the first six months to December 2020 fell short of Sh907.7 billion target by Sh107.6 billion underlining the challenges of the Covid-19 pandemic’s disruptions on businesses.

The economy contracted by 5.7 percent in second quarter of last year, the deepest in nearly two decades taking a hit from the economic fallout from the Covid-19 pandemic.

The type of credit Kenya has sought from the IMF is a quick-disbursing facility where money flows straight into the budget to top up the public purse and is used at the discretion of the government.

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