Treasury Cabinet Secretary John Mbadi when he appeared before the Committee on Appointments in Nairobi on August 3, 2024.
New National Treasury and Planning Cabinet Secretary John Mbadi has revealed that his talks with International Monetary Fund (IMF) representative Selim Cakir centred on a board meeting between Kenya and the lending institution scheduled for September this year.
Mr Mbadi dismissed assertions that the IMF put conditions on the government during their meeting saying no conditions or terms of any loan was discussed.
“We just had a general discussion about the upcoming board meeting in September. You remember the meeting was to happen in July but did not take place because of the reasons we all know,” Mr Mbadi said.
The IMF executive board was expected to meet in July to approve funding drawdown but due to the anti-government protests and withdrawal of Finance Bill, 2024 which led to a financing hole of Sh346 billion, the meeting did not tax place.
The government is eyeing a drawdown of about $600 million (Sh78.16 billion) from the IMF when the institution’s executive board approves the seventh review of Kenya’s medium-term funding programme.
The talks according to Mr Mbadi also revolved around the declaration of the 2023 Finance Act illegal by the courts.
“The representative expressed concern that the country may have a revenue shortfall following the ruling on 2023 Finance Act,” Mr Mbadi said.
Mr Mbadi said Mr Cakir is like a mediator between the fund and the country hence the meeting was a normal one since he was taking over a new office.
“These are routine meetings that take place when a person takes over office,” Mr Mbadi said.
Read: I'll reinstate 'progressive' parts of rejected Finance Bill, 2024, says Treasury CS John Mbadi
Mr Mbadi took over the office with the rejection of the Finance Bill, 2024 following sustained protests which the lending firm had predicted in its January report.
In the report, the IMF had told the government not to bulge in its new revenue raising measures that were contained in the Bill.
The international lending body has always defended its position on the loans advanced to Kenya insisting that their main aim is to help the country improve its economic prospects.
During the Monday meeting, the treasury tweeted on their X social media account highlighting the crucial role that the IMF plays in support of economic stability of the country.
“The IMF representative in Kenya, Mr Selim Cakir paid a courtesy call to Treasury CS @_HonMbadi, @Kiptoock this morning. The IMF continues to play a crucial role in supporting Kenya’s economic stability and development,” Treasury said on its X social media account.
Majority of Kenyans however started cautioning Mbadi against engaging with the IMF with Central Organization of Trade Unions (Cotu) Secretary General Francis Atwoli leading the pack in warning Mr Mbadi implementing any of the IMF conditions blindly.
The Cotu boss in a statement said the union remains committed to advocating for policies that promote economic stability while ensuring the protection of workers' rights and the welfare of all Kenyans.
The IMF has largely been blamed for the high cost of living in the country. President William Ruto chose to work with the IMF to help stabilise the country economically after he was elected in 2022.
The fund has also been blamed for the punitive taxes such as the 16 percent value added tax (VAT) on fuel and far reaching austerity that has recently been implemented by the Kenya Kwanza administration, assertions that have always been dismissed by the IMF.
The long winding history of the IMF, and its sibling the World Bank have been in the country’s economic books since independence in various spheres ranging from the structural adjustment programs of the 1990s to the recent amendments contained in the Finance Bill 2024.
The giant world organizations that rose out of the Bretton Woods consensus in the aftermath of the Second World War have loomed large in the country’s economic history.
While Mr Atwoli was cautioning Mr Mbadi about the dalliance with the IMF representative, Kenya is not the only country that have raised concerns about the painful IMF-backed tax proposals.
Other countries that have also raised eyebrows on some of the firms’ tax proposals include Argentina, Spain, Greece, Indonesia, Ecuador, Egypt, and Suriname.
In the case of Kenya, a chunk of the contentious measures contained in the Finance Bill 2024 for the fiscal year starting July are part of a lending program that Kenya has with the multilateral financier.
Kenya entered into the program in 2021 under the administration of retired President Uhuru Kenyatta. The program introduced various belt-tightening measures, including the far-reaching tax measures that triggered the nationwide protests.
The Uhuru Kenyatta administration hastily passed into law an IMF-backed Value Added Tax Bill 2013. The VAT Act, 2013 removed items such as electricity, cooking gas, textbooks, computer hardware and software, animal feeds, and chemical fertilizers from the zero-rated schedule. This means the items would henceforth attract VAT, thus making them expensive.
During his vetting, Mbadi was accosted by the IMF question with the vetting panel demanding to know how he will deal with the lending institution and how he will get the country out of being a captive of its unfavourable lending rates.
“There was a time in this country when we operated without the IMF, we can do the same. The IMF does not invite themselves to our country, they are invited and everything is agreed upon. We can however agree on modified rates that do not burden the taxpayers,” Mr Mbadi told the panel.
He reiterated the position yesterday saying there is no condition that the IMF has so far put Kenya on anything.
“These people (IMF) don’t force anything on anyone before they lend you, you sit down and agree on the terms and conditions. It is only if you don’t meet the conditions that they will come back and ask you the questions,” Mr Mbadi said.
“You just agree on what you will do if given the funding,” Mr Mbadi added
Mr Mbadi during his vetting promised to re-introduce non-contested sections of the rejected Bill as part of stabilizing the country’s purse.
The government has also since announced a raft of cost cutting measures in order to cope with the new financial reality occasioned by the rejection of the Finance Bill.
The meeting of Mbadi with the IMF caused fears among Kenyans that the country is warming up to another loan from the fund.
The country successfully managed to stay away from the IMF until 2021 when it was reeling under the heavy blows of the Covid-19 pandemic.
At the height of the pandemic in 2020, the country’s foreign exchange reserves (forex) fell as exports underperformed as key markets like Europe and the US locked down their economies.
When Ruto’s Kenya Kwanza government came to power, they agreed with the IMF to increase VAT on petroleum products to 16 percent.
Excise duty on airtime and fees on mobile money transfer fees were also to be increased from 15 to 20 percent and the motor vehicle tax was to be introduced in the Finance Act 2023, but these were delayed until this year.
The government was also to reduce a lot of tax expenditures–foregone taxes–by introducing VAT on a lot of zero-rated items like bread.
According to the IMF, these measures would have given the government upwards of Sh32 billion. But these were delayed to this year. And now they will be delayed even further after the entire Finance Bill was rejected.
