Why IMF, World Bank hand in Kenya budget faces pushback

Kenyan Citizens demonstrate and Protest against over Taxation bill along Nairobi streets. [Jonah Onyango, Standard] Among the many placards on display in the streets of Nairobi last June when Kenyans protested against the Finance Bill, 2024 were a few unpalatable ones targeted at the international Monetary Fund (IMF). It was an indication of the citizens' anger towards the measures proposed by the IMF in 2021 and were now being cascaded down to Kenyans over time, and particularly the global lender's hand in crafting of last year's Finance Bill that tried to raise the cost of many items, including essentials. "Kenya is not IMF's lab rat," said one placard. "IMF keep your hands off Kenya." Following the protests, which turned tragic as police used excessive force against the protesters, led by 'Gen Z' the Bill was defeated when President William Ruto declined to sign it. Proposals by the IMF and the World Bank have been a common feature in Kenya's budget-making process. Over the years, critics of the Bretton Woods institutions have pointed to their "fingerprints" in Kenya's budget and tax laws. The influence has been more explicit in the post Covid-19 period as IMF offered Kenya budgetary support to help economic recovery, but also in the 1990s, when the government implemented the unpopular Structural Adjustment Programmes (SAPs). Many observers agree that last year's protests had been in the offing for sometime as the government became overzealous as it sought to increase tax collections to meet requirements set by the IMF when it agreed to the budget support programme. The IMF had offered Kenya a 38-month (the period was later revised and extended by 10 months) credit facility since April 2021, disbursed periodically and on condition that the country met certain conditions aimed at streamlining government operations. These included higher tax collections, doing away with subsidies, parastatals reforms including reduction in bailouts and privatisation of some firms and reducing the budget deficit. It was against these conditions that the government hiked value added tax (VAT) on petrol to 16 per cent in 2023 and has been trying to withdraw subsidies on fuel unsuccessfully. The IMF also required Kenya to reform State-owned entities through privatisation, merging some with duplicating roles and shutting down others whose mandate has been overtaken by events. IMF and the World Bank have over the years dictated how the National Treasury develops its policies on spending and tax revenue collection. This is not limited to Kenya but happens to other developing countries. Meeting the conditions enables countries to access grants and concessional loans, although doubts have been voiced recently on how concessional and cheap the loans are. While the government appears to stay away from new tax measures in this year's Finance Bill, it has tried to align the budget to the demands of the two institutions. The World Bank recently published a report in which it made proposals that would have far-reaching effects on Kenyans. Analysts say the proposals contained in the May report titled, Beyond Budget - Fiscal Policy for Growth and Jobs are a mixed bag, with some of the recommendations aimed at reducing tax burden for low income earners but also suggesting higher taxes for high income earners. It has also recommended reducing government expenditure in such areas as out of office allowances and bailouts to State-owned enterprises through privatisation. The seeming overbearing nature of the two institutions in making spending and taxation plans is not for nothing. The institutions are among the largest lenders to Kenya and having sound public finance management is among the surest ways to guarantee return on investment. Kenya's debt to IMF was $4.2 billion (Sh542.4 billion) as of May 2025 while it owes the World Bank Sh1.5 trillion, with the two lenders accounting for about 18 per cent of Kenya's total debt that stood at Sh11.36 trillion as of March this year. "The World Bank and the IMF have dominated Global Finance since the Second World War. Many countries have an engagement with them as a means to get a global reputation within the Western Donor circles. "During the Kibaki era, their role in the Kenyan economy was significantly diminished," said Ken Gichinga, chief economist at Mentoria Economics. "At the heart of the problem is what is referred to as the 'Politician-Banker' complex. The politician always desires a larger budget for his political objectives, and the banker is willing to fund these initiatives if the interest paid is sufficiently high." "And so it becomes a win-win solution for them. The loser, however, is the common citizen who at the end of the day, will be responsible for footing the bill," he told Financial Standard. Homegrown solutions University of Nairobi lecturer and economist Samuel Nyandemo said the government has always anchored taxes with a lot of influence from the International Monetary Fund (IMF), which may ultimately lead to an increase in certain prices. "Many of these policies are forced on us by the IMF and the World Bank. We should have homegrown solutions in terms of our budget, not relying heavily on international donors," he said. National Treasury Cabinet Secretary John Mbadi said in his early days in office that the government may have been over-ambitious in agreeing to some of the conditions by the global lenders, which were agreed to during the Jubilee Administration's last year in power. While the CS noted that Kenya cannot sever links with the IMF, he said the conditions were unrealistic. "The thing that we need to do is that we must be realistic. I completely believe that some of the targets that we had set with the IMF were unrealistic," Mbadi said. "You cannot come from a fiscal deficit of 5.2 per cent to GDP and go to 3.8 per cent. It should have been gradual," adding that it is also a tall order for any economy to grow its tax-to-GDP ratio by two percentage points in one year. Various government officials have in the past said Kenya could increase the tax-to-GDP ratio to 16 per cent from 14 per cent and push it to over 20 per cent in the medium term. "You cannot increase tax collections by two per cent in any economy, you will cause disturbance. It is not practical," said Mbadi. The government has not factored financing from IMF in the budget for the 2025-26 financial year as the two are yet to negotiate a new programme to succeed the extended credit facility. In continuing to work with the government, including giving Kenya loans, IMF and World Bank have been accused of enabling corruption within the government as well as saddling the country with debts to the point that debt sustainability is now in question. An activist movement, Okoa Uchumi, has noted that the government has been mismanaging Kenya's economy as the IMF urged it on. "The IMF bears its share of the blame for the morass that Kenya finds itself in, having long enabled the governing elite's ravenous appetite for debt. It must reflect on its role," it said in a May 2025 report authored alongside its partners, the Institute of Social Accountability and Africog. Unpayable debt In the report, the civil society lobbies noted that they had delivered a memorandum to the board of directors of the IMF and other stakeholders at the Spring meetings of the Bretton Woods Institutions in April 2025, in which they urged IMF to self reflect and acknowledge that its policies have done more harm than good to the Kenyan economy. "The IMF has played a key role in supporting the GoK (Government of Kenya) as it ran the economy into the ground, and must also bear responsibility," said Okoa Uchumi in the report titled, Stealing the Future. "Policies have had the effect of damaging a promising developing economy by supporting a predatory government in sinking citizens into unpayable debt." It said the latest Budget shows "emboldened and continued economic mismanagement, which will only increase the fears of those who are the promise of the future: the young, educated people who have risen in anger," not just in Kenya, but across Africa. "This could end in the highest cost imaginable if their demands for transparency, people-centred growth and an end to endemic corruption continue to be ignored." Kenya is not the only country where the IMF and World Bank have seen a pushback against the many requirements that governments have to meet to access credit. Last year, Nigeria erupted following price hikes of essentials as the government sought to meet the requirements for a $2.25 billion loan (Sh292 billion). At the time, Olusegun Obasanjo, former president of Nigeria told the Financial Times that the prescriptions from the IMF and World Bank "may work for developed countries" but were not right for emerging economies. "African states should be the architects of our own fortune," he added. "If the World Bank and IMF are the architects for us, we will fail," Obasanjo said in the FT article. He said staff at the lenders were "brilliant, first class in Cambridge and Ivy League schools" but unfit to make "recommendations for millions of people in developing countries".

Why IMF, World Bank hand in Kenya budget faces pushback

Get Full Access for Ksh299/Week.

Related Topics

Popular this week

Latest Stories

The Standard Insider

Digger Classified

GET OUR NEWSLETTER

CONNECT WITH US

FOR THE LATEST JOB ADVERTS

DIGGER JOBS

Digger Motors

Digger Real Estate

Why IMF, World Bank hand in Kenya budget faces pushback

Get Full Access for Ksh299/Week.

Related Topics

Trending Now

Popular this week

Latest Stories

The Standard Insider

Digger Classified

GET OUR NEWSLETTER

CONNECT WITH US

FOR THE LATEST JOB ADVERTS