Kenyan economists are calling on the International Monetary Fund (IMF) to reassess the rigorous conditions attached to the $2.34 billion facility approved in April 2021, which was intended to aid the country’s post-Covid economic recovery. This call to action was made during the launch of a macroeconomic study in Nairobi on July 17, 2024, where economists Peter Doyle, Kwame Owino, and Maureen Barasa highlighted the negative impacts of the IMF’s growing demands on Kenya’s economy.
The Institute of Economic Affairs (IEA) released a report titled “And Then, Floods: A Critical Macroeconomic Assessment of IMF Conditionality on Kenya, 2021-present,” which provides a comprehensive critique of the IMF’s conditionality. Initially, the IMF imposed 26 conditions on the financial facility, but this number has since increased to 36 in the latest, sixth review. The report argues that this escalation is not only unfair but also harmful to Kenya’s economic stability and growth.
The report emphasizes that the IMF’s conditions have contributed to significant economic challenges, particularly by exacerbating instability in tax structures and causing hardships for low-income earners. “As listed by IMF staff, it started with 26 conditions, a breach of any one of which could in principle have caused disbursements to stop. That number had ballooned by the 6th Review to 36, including those associated with borrowing under the Resilience and Sustainability Trust which began with the Fifth Review,” the report states.
The IEA’s analysis criticizes the IMF for failing to accurately diagnose Kenya’s economic problems, such as underperforming growth, an unstable exchange rate, and a high public debt stock. The report suggests that the IMF’s insistence on increasing revenue ratios to support government functions has led to chronic tax instability and economic distress. “The IMF was right in early 2021 that Kenya needed a successor programme to the Covid Rapid Credit Facility, beyond that, the programme was born in misdiagnosis,” the report notes.
According to the economists, targeted fiscal adjustments should have been front-loaded to allow monetary policy to drive exchange rate correction. Instead, these adjustments were backloaded, resulting in instability. Furthermore, the IMF’s conditionality on climate change was added without adequate explanation, diverting attention from more pressing issues like food prices.
Real incomes in Kenya continue to fall, particularly among low-income groups, leading to a cycle of economic decline and public unrest. The IEA report describes this as a “doom loop,” where output and revenue shortfalls lead to tax adjustments that further compound the shortfalls. This cycle has fueled ongoing protests and public discontent.
Despite criticism from policy analysts and the general population, the IMF has shown little willingness to adjust its approach. The report states, “Instead of acknowledging and correcting it, the IMF’s de facto response is exasperation at the market and public disquiet, insisting that Kenya ‘tough it out’ with that indignant tone echoed, perhaps under duress, by some local officials.”
The report also notes that these stringent conditions have placed President William Ruto in a difficult position, appearing to prioritize IMF demands over the needs of Kenyans. The economists argue that Kenya needs a fundamental economic reorientation to address complex debt sustainability and governance issues simultaneously. However, the challenges associated with resolving debt and political issues may discourage the intended boost to business investment.
Public protests over the IMF’s conditions have been ongoing for almost a month, with many Kenyans calling for a complete exit from the IMF program. However, the economists recommend a more nuanced approach. “The answer is not to toss the IMF baby out with the bathwater—but it has to change tack, abruptly,” the report advises.
To address the issues, the economists propose that the IMF discontinue lending to Kenya from the Resilience and Sustainability Facility, leaving Kenyan authorities to address these matters independently. They also call for greater transparency from the IMF regarding its strategic decisions and parameters, arguing that the current lack of transparency breaches IMF policy.
The report appeals to President Ruto to advocate for a balanced approach that prioritizes the well-being of Kenyans. It emphasizes that Kenya—and Africa—should demand fair treatment from international lenders and avoid policies that lead to further economic distress and social unrest. “Ultimately, there is no virtue or African pride in paying a debt to the point of hunger and disorder, and no excuse—with dozens of young protesters dead and many more disappearing—for the IMF to fuel those flames,” the report concludes.
