IMF backs tax hikes as it okays another Sh137b loan for Kenya

The International Monetary Fund (IMF) has backed the government's new controversial taxes, which are expected to worsen the raging cost of living crisis. 

The Bretton Woods institution says the new taxes are essential for the cash-strapped Kenya Kwanza administration to mobilise critical resources to prop up the battered economy. 

IMF vouched for the taxes as it signed off a new $966.8 million (Sh136.7 billion) loan to the government. It said the loan will help cushion the battered economy from the fallout caused by tightened debt market conditions and external shocks.

The opposition has rejected the Finance Act, 2023, saying the implementation of some of the clauses, including the hike in taxes on fuel, would worsen the already high cost of living. 

Other than the higher prices of fuel, which are expected to see the cost of most essential goods and services rise, the government has through the Act also introduced the affordable housing levy that many say will see a reduction in the disposable income of many Kenyans. 

This has triggered anti-tax protests by the opposition and its supporters, which are slated for every Wednesday, Thursday and Friday. The protests, which resume today according to opposition chief Raila Odinga, are meant to pile pressure on the Kenya Kwanza administration to address the rising cost of living crisis. 

“The approval of the financial year 2023-24 Budget and 2023 Finance Act are crucial steps to support ongoing consolidation efforts to reduce debt vulnerabilities while protecting social and development expenditures," said IMF Deputy Managing Director and Acting Chair of the IMF executive board Antoinette Sayeh after approving Kenya's new loan. 

The fresh loan package comes as a relief for the President Ruto government as it is expected to offer it breathing space amid an escalating debt burden. 

The fresh loan deal, however, is expected to subject hard-pressed Kenyans to tougher economic times after the IMF prescribed another dose of its renowned bitter pill of austerity. 

This includes fresh demands to the newly elected government to cut public spending, which could impact public jobs amid a raging unemployment crisis as well as increasing taxes. "Key policy priorities of the programme include reducing debt vulnerabilities through multi-year fiscal consolidation efforts," said IMF.  

Ballooning inflation, escalating borrowing costs and a strong dollar have made repaying sovereign loans and raising money significantly more expensive for Kenya amid fears of default. IMF said its board’s decision allows for an immediate disbursement of Special Drawing Rights (SDR) 306.7 million (about $415.4 million; Sh58.7 billion), bringing total disbursements under the arrangements so far to about $2.04 billion (Sh288.5 billion). 

SDR is an international reserve asset created by the IMF to supplement the official reserves of its member countries.