IMF’s hand in Uhuru decision to freeze new mega projects

The International Monetary Fund (IMF) last week announced that it would delay publishing new set of performance criteria that would guide its relation with the Kenyan Government.

“The authorities need more time to consider the publication of the staff report and the related press release,” said IMF in a statement.

More time to publish a report? Something was not right.

The Bretton Woods institution had in March agreed to Kenya’s request for an extension of the precautionary credit facility by six months, on condition that the country undertakes a number of painful reforms, including the scrapping of the interest rate cap.

Until such reforms were carried out, the country could not access $1.5 billion (Sh150 billion) standby credit facility in case of an external shock.

The Government, of course, agreed to reduce its debt uptake by taming its expenditure. Treasury also promised to get rid of a number of tax exemptions, in a move aimed at mobilising tax revenues.

Already, National Treasury has proposed a number of tax measures, including an increase on excise duty on mobile transactions to 12 per cent from 10 per cent, 0.05 per cent Robin Hood tax on bank transactions amounting to Sh500,000 and above.

Kerosene and sugar confectionary have also been hit with higher excise duties. Moreover, from September, petrol is going to attract a value added tax (VAT) of 16 per cent as the Government moves to collect about Sh75 billion from this product.

National Treasury Cabinet Secretary Henry Rotich has also proposed the repeal of interest rate cap in his budget speech.

However, few days later after the briefing in the same week, President Uhuru Kenyatta who has aggressively been going after corruption and wastage in Government, announced that all new projects would be frozen until those which are ongoing are completed. Normally, the Kenyan Government gives approval for the publication of any report by the IMF.

The Fund’s Nairobi representative Jan Mikkelsen could not be reached on phone. “Under Article IV of its Articles of Agreement, the IMF has a mandate to exercise surveillance over the economic, financial and exchange rate policies of its members in order to ensure the effective operation of the international monetary system,” said the IMF in a statement.

The Bretton Woods institution said appraisal of such policies involves a comprehensive analysis of the general economic situation and policy strategy of each member country.

“IMF economists visit the member country, usually once a year, to collect and analyse data and hold discussions with government and Central Bank officials. Upon its return, the staff submits a report to the IMF’s Executive Board for discussion,” read the statement.

It is the Board’s that makes the final decision, summarising its views and transmitting them to the country authorities.

This means that Treasury is currently in receipt of IMF’s report. It is possible that Treasury might, for a reason or the other, requested for the delay in publication of the report.

And on Friday, as experts tried to understand why IMF’s Executive Board had put off the publishing of its views, the State recent quest for austerity which has taken the shape of fighting corruption and wastage.

This is President Kenyatta’s far-reaching of the austerity measures that the Government has been undertaking since IMF placed the country on its watch list.

The President froze all new projects, save for those related to his pet plan, Big Four Agenda. “There will be now new projects that will be no new projects embarked until you complete those that are ongoing,” Mr Kenyatta notified Principal Secretaries, heads of parastatals and chairpersons of parastatal boards.

“Even if new projects are aligned to Big Four, they cannot be started without express authority from CS or PS of the National Treasury,” he added.

Government has also, for a long time, frozen job recruitment and promotion save for those in critical areas such as health, education and security.

On taxation the Government is keen on widening the tax bracket, sealing all leakages and removing exemptions. This even as the Government last week received a major set back on its fiscal consolidation policies after the High Court suspending the implementation of new tax measures that would have seen the State collect more excise duty from mobile money transaction, kerosene, Robin Hood taxes on bank transactions of over Sh500,000.

Constitutional office

Civil servants will also start paying for their pensions as the State moves to lighten its non-discretionary expenditure.

This also includes salaries and allowances to constitutional office holders, debt redemption and payment on interests on debts, and subscriptions to international organisations.

For years, civil servants have been enjoying pension without contributing towards their retirement.

But starting January next year, 7.5 per cent of civil servants’ gross salary will be deducted as pension payment.

This is part of Treasury’s efforts to implement an IMF-backed plan where the Government will cut back on its spending and increase tax revenues.

Those targeted by the new scheme are mainstream civil servants, teachers and members of the disciplined forces. The Government, the sole con tributor to the civil servants’ retirement kitty, will contribute 15 per cent of the gross salary.

The IMF also wants Kenya to abolish interest rate controls in what it believes will see the banks open up their vaults and extend credit to the households and small businesses.

In the previous facility, the Fund expected the Government to significantly cut its budget deficit and ensure that public debt did not exceed 50 per cent.

As a result Kenya was expected to undertake some reforms aimed at reinforcing public financial management, strengthening the monetary policy framework, mitigating financial stability risks, and upgrading data quality.