How donors will shape government spending

IMF Representative Kenya Jan Mikkelsen.

IMF Representative Kenya Jan Mikkelsen. President Uhuru Kenyatta’s last budget is likely to be defined by tough conditions by multilateral lenders keen on prudent use of the multibillion-shilling loans given to support the country’s growth.

Photo credit: File | Nation Media Group

President Uhuru Kenyatta’s last budget today (Thursday) is likely to be defined by tough conditions by multilateral lenders keen on prudent use of the multibillion-shilling loans given to support the country’s growth.

The International Monetary Fund (IMF), in particular, has set various conditions for Kenya to continue accessing loans that have had implications on the economy and which will be evident in the budget to be unveiled today.

IMF’s latest review document, under the extended credit facility with Kenya, released in December 2021 shows the measures the government has committed to undertake as a condition to continue accessing credit.

They include the restructuring of state-owned enterprises (SOEs), which are expected to result in the firing of government workers, additional taxation measures to grow government revenues, and spending control measures that will hit civil servants hard. IMF says in the document that Kenya must continue reducing “non-priority primary spending”, even while protecting priority social spending.

Medium-term revenue strategy

IMF also exerts pressure on the government to complete the planned medium-term revenue strategy (MTRS), expected to identify a well-sequenced and coherent set of tax policy and administrative measures to widen the tax base, latest by 2024.

“The authorities intend to continue their successful approach to limiting primary expenditures by containing the wage bill—including through a rationalization of wage allowances in line with the recommendations of the Salaries and Remuneration Commission (SRC)—and improving the efficiency of public investment,” IMF says, in what explains why SRC is under pressure to issue guidelines to all government agencies on how to cap allowances for all civil servants at 40 percent of their basic pay.

SRC is expected to issue the guidelines by end of this month.

IMF, however, said Kenya has expressed concerns “on the realistic yield of the tax measures envisaged in FY22/23 and FY23/24,” despite noting that Kenyan “authorities reiterated their commitment to implementing a multi-year consolidation effort centred on revenue-enhancing and spending-reducing measures under the Fund-supported programme”.

Over-reliance on debts

Economists say Kenya’s over-reliance on debts to run its budgets is increasingly hindering the government’s independence in deciding what is important for the country with foreign interests are increasingly taking precedence over citizens’ needs.

“Because of the huge deficits in our budgets today, we find ourselves in need of development partners more than when we had more balanced budgets during former President Mwai Kibaki’s tenure, and in a way, the objectives are changing from improving living standards for Kenyans, to abiding by conditions set in Washington,” says Ken Gichinga, Chief Economist at Mentoria Economics.

Kenyans have already been witnessing prices for basic commodities go up, caused by different factors including an increase in their taxation, and additional taxes as suggested in the IMF document would mean even tougher times.