Bitter IMF austerity pill return overshadows budget unveiling

Kenyans are bracing for tougher economic times as the International Monetary Fund (IMF) prepares to prescribe another dose of its austerity “bitter pill” measures that previously ignited deadly youth-led protests. 

The new demands are expected to include deep cuts to public spending and potentially impact public jobs, exacerbating a raging unemployment crisis.

Central Bank of Kenya (CBK) Governor Kamau Thugge confirmed discussions with the IMF for a new deal, with an IMF team expected in September to begin talks on an Article IV consultation. 

“We are indeed having discussions with the IMF, and the government did send a letter to the IMF requesting to negotiate a new arrangement,” Dr Thugge said during the apex lender’s post-Monetary Policy Committee (MPC) meeting in Nairobi yesterday.  

This fresh engagement comes two months after the Kenya Kwanza administration abruptly terminated its existing $2.3 billion (Sh301 billion) IMF programme. 

That decision followed Kenya’s failure to meet key targets under the previous Extended Fund Facility (EFF) and Extended Credit Facility (ECF) programmes, resulting in a loss of Sh110 billion in planned funding.

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The terminated programme and its associated fiscal consolidation demands had direct consequences, notably leading to widespread “Generation Z” protests against the Finance Bill last June. 

These IMF-backed measures, which proposed unpopular tax hikes, including a 16 per cent Value-Added Tax (VAT) on bread, increases on mobile money transfers, and new levies on essential goods, were seen by many young Kenyans as disproportionately burdensome. 

The demonstrations, which human rights groups reported resulted in dozens of deaths, underscored deep-seated public resistance to IMF-backed economic policies that ignored the rising cost of living.

“The Kenyan authorities and IMF staff have reached an understanding that the ninth review under the current Extended Fund Facility and Extended Credit Facility Programmes will not proceed,” the IMF stated, acknowledging a formal request for a new programme.

The experience of the Gen Z protests has become a cautionary tale for both the IMF and the Ruto administration, highlighting the critical need for effective communication and stakeholder engagement when implementing economic reforms. 

An IMF paper, published last year “Understanding the Social Acceptability of Structural Reforms,” emphasized that effective strategies must be backed by “strong institutional frameworks that foster trust and a two-way dialogue among stakeholders and the public.”

Simultaneously, Kenya is pressing its largest bilateral creditor, China, to swiftly finalise a crucial financial cooperation agreement. 

During high-level talks in Changsha, Chinese Foreign Affairs Minister Wang Yi was urged by Kenya’s Foreign Affairs Minister Musalia Mudavadi to conclude negotiations on the deal by the end of June.

“The government of Kenya is very happy with the outcomes of the [President Ruto’s] visit, which has deepened and expanded the areas of cooperation,” Mr Mudavadi stated.