To revive lending that has been halted by the rejection of tax increases, major IMF (International Monetary Fund) shareholders are pressuring Kenya to seek an evaluation from the global financial body regarding corruption and governance concerns surrounding the African nation.
A USD 20.7 billion tax increase that the Kenyan government withdrew in June 2024 in response to widespread protests has delayed the distribution of approximately USD 600 million under an IMF plan that expires in 2025.
Young protestors claimed their taxes were being used to finance politicians’ extravagant lifestyles, which led to demonstrations that resulted in over fifty deaths and highlighted issues of corruption and misgovernance.
Western governments have been pushing for an IMF assessment of governance vulnerabilities, or governance diagnostic.
They discussed private conversations while maintaining their anonymity. The concerned nation must request a governance diagnostic. One expert said such a request would facilitate discussions about further IMF support.
Since 2014, the IMF has released governance diagnostic reports on 14 countries, including Sri Lanka, Cameroon, and Ukraine.
According to the Fund’s website, more diagnostics are being conducted. After reversing the tax increases, Kenyan authorities are searching for new ways to raise revenue. In August, the government would have to reinstate some of the measures from the bill that was shelved, according to Finance Minister John Mbadi.
Nonetheless, Mbadi announced in September 2024 that he would ask the public for recommendations on new laws to increase revenue.
According to experts, the IMF won’t consider fresh disbursements until the government submits a solid plan to reduce its fiscal deficit.
Meanwhile, Kenya’s economy expanded by 4.6% year-on-year in the second quarter of 2024, down from 5.6% in the corresponding quarter of the previous year, the national statistics office said recently.
The second quarter of 2023 GDP data was revised upward from a previous figure of 5.0%. The Kenyan statistics office further attributed second-quarter growth to the robust performance of sectors including agriculture, forestry and fishing, real estate, financial and insurance activities, and wholesale and retail.
However, the mining, quarrying and construction sectors saw a contraction, the statistics office said in its statement.
Kenya’s Finance Ministry has projected a 5.2% economic growth for 2024, a slight decrease from 5.6% in the previous year. At the end of Q2 2024, nationwide protests against proposed tax increases resulted in disruption and violence in major cities.
President William Ruto subsequently scrapped the tax measures, but demonstrations persisted into the third quarter, with protesters calling for better governance, an end to corruption and better service delivery.