Amani National Congress (ANC) party leader Musalia Mudavadi now wants the National Treasury to disclose the conditionalities attached to the budgetary support loans the government is getting from the International Monetary Fund (IMF).
While maintaining the country is better off with IMF loans than borrowing from commercial lenders, Mr Mudavadi was categorical that the disclosure will enable Kenyans plan and prepare for the implications and not seem like they’ve been ambushed.
This he says, is critical especially when policy and legal changes are required to accommodate the IMF conditionalities.
“Disclosure is important even as we maintain cordial relationship with the IMF as it helps in planning for the expected changes,” Mr Mudavadi, a former Finance minister during the KANU administration in the early 1990s, said.
The ANC boss further noted that the IMF loans are attractive to poor states because they are cheaper than commercial loans that attract high interest rates.
“Kenya is a highly indebted country. With the Covid-19 pandemic, the situation has become dire. Therefore, to get out of the abyss, the government is better off with the IMF on our side than against us,” he added.
The tax base
Mr Mudavadi spoke as the government secured a Sh257 billion loan from the IMF.
The latest loan adds on to the country’s ballooning public debt concerns that currently stands at Sh7.2 trillion according to the National Treasury compared to the Parliamentary Budget Office (PBO) figure of Sh8.4 trillion.
The IMF loan, to be disbursed in batches, shall be used for the 2020/22 budgetary support programme that includes Covid-19 interventions. Kenya is a member of the IMF, a Bretton Woods institution like the World Bank.
This means that Kenya must satisfy the IMF conditionalities before the loans are disbursed.
The IMF conditions include reduction of the size of the civil service to cut high wage bills, privatisation and restructuring of state corporations and parastatals.
The others include a commitment to fight corruption and broaden the tax base, which may lead to higher taxation.
“Reducing the size of the civil service is a recipe for job losses. Restructuring and privatisation of state corporations and parastatals require legislative changes,” Mr Mudavadi noted. “To ensure that you get IMF support, it’s important to engage the people for the necessary support.”
In the early 1990s, frosty relations with the then Kanu administration over its failure to address rampant corruption within the public service saw the IMF and the World Bank walk out on Kenya.
The walkout was like a domino-effect as the other creditors also followed suit. Without the loans, the government faced a difficult task of depending only on the revenue generated locally to finance its budget.
It was during that time that inflation hit 45 per cent, the highest ever. It however, took the intervention of Mr Mudavadi as Finance minister to re-engage and bring on board the two Bretton Woods institutions.
With corruption still a challenge in the public service, it will be interesting to see how government commits to address it.
This is notwithstanding that a majority of individuals mentioned in graft are yet to be convicted or charged in court.
Some of them have even been elected or appointed to offices that are critical in policy formulation and lawmaking, making it difficult for the country to deal with corruption.