The International Monetary Fund (IMF) warned Kenyans protesting its loans to the government that they face job cuts, tax increases and expensive loans without its assistance.
The IMF has released a statement following public outcry over the government’s growing appetite for debt after it approved a $2.34 billion loan to Kenya, saying its bailout has saved the country from a debt crisis in the mid of the Covid-19 pandemic.
The IMF said the loan would help Kenya tackle Covid-19 in the short run and balance its books in the long run by replacing expensive bank loans with concessional financing from bilateral countries and multilateral institutions.
“The arrangements with the IMF — together with additional financing from development partners and capital markets and G-20 support under the Debt Service Suspension Initiative (DSSI) — will help meet Kenya’s significant medium-term financing needs including to support their Covid-19 response. The alternative to this financing is much sharper fiscal consolidation or much more expensive borrowing on commercial terms,” the IMF said in a frequently asked questions on Kenya.
The pandemic has hit Kenya’s revenues and limited access to commercial loan markets, forcing the country to turn to the World Bank and the IMF seeking direct budgetary financing.
Previously Kenya had kept away from direct budget funding from institutions like the IMF and the World Bank during former President Mwai Kibaki’s regime with most of the support coming in the form of project support.
Now, the country’s deteriorating cash flow situation that is marked by falling revenues and worsening debt service obligations has forced the country to return to these loans, which have conditions attached to them.
Last year, Kenya borrowed Ksh79.3 billion (about $733 million) from the IMF and has now taken $2.34 billion under the current programme.
From the World Bank, Kenya took $750 million in 2019, and last year took a $50 million Covid-19 emergency funding, a $43 million loan for battling locusts, and $1 billion budget support facility to help manage adverse effects of the pandemic.
Kenya plans to borrow an additional $1.5 billion from the World Bank this year.
The pandemic only tipped the scales for the country that was headed to a debt crisis after President Uhuru Kenyatta’s Jubilee administration borrowed at least Ksh6.1 trillion (about $56 billion) to implement his manifesto in 10 years in power having inherited slightly more than Ksh1.79 trillion ($16 billion) in June 2013.