In Kenya, ongoing protests against tax hikes have put the spotlight on the International Monetary Fund (IMF) and its controversial role in the country’s debt crisis. Demonstrators accuse the IMF of imposing harsh loan conditions that hurt the poor, while the government struggles with a massive debt inherited from previous administrations. As Kenya’s President Ruto rolls back tax proposals amidst violent clashes, the IMF faces criticism for its influence on Kenya’s economic policies, leaving many to question: is the IMF holding Kenya hostage?

Even though the protests have been ongoing for weeks, committed Kenyans continue to demonstrate against the administration.

However, when demonstrators first took to the streets in June to protest proposed tax hikes, President William Ruto and members of parliament were not the only ones targeted as reported by Al Jazeera.

Placards accusing the International Monetary Fund (IMF) and the World Bank of causing the crisis were raised during the protests, which later turned fatal. “IMF, World Bank, End Modern-Day Slavery,” one poster read.

Graffiti criticizing the NGOs may be seen throughout Nairobi, even as protesters continue to demand Ruto’s resignation.

So, what is the IMF’s role in the current crisis, and what do Kenyans want from the organization?

IMF Actions Explained

For years, international lenders, particularly the IMF, have had a terrible reputation in African countries for providing loans to desperate governments subject to severe conditions that critics claim have always unfairly impacted poor people.

African leaders, notably Ruto, have also criticized Western lenders for allegedly charging disproportionately high lending rates in comparison to other developing countries.

In Kenya, the outrage is fresh since Ruto’s now-withdrawn tax hikes, as well as similar legislation enacted in 2023, are both related to IMF financing as the country struggles under the weight of a massive debt crisis.

While some of the criticisms leveled at the IMF are valid, African politicians are frequently to fault, according to Dumebi Oluwole, an economist with the data analytics startup Stears. Higher interest rates, she explained, are frequently the result of default records. The harsh terms from lenders like the IMF have also been applied to impoverished countries elsewhere, including Greece, which went through an economic crisis in 2009 and was partly bailed out by the lender, but African governments frequently rely on solutions that damage the majority, she added.

“African leaders are the sellouts,” she said. “We all know that IMF loans come with conditions, but some leaders, when asked to raise revenue, will choose taxation rather than cut costs. Then they’ll blame the IMF. Someone can only dangle crumbs in your face when you don’t know how to cook.”

Understanding Kenya’s Debt Situation

When Ruto became office in August 2022, Kenya was already in trouble. Its external debt was around $62 billion, or 67 percent of its GDP.

Former President Uhuru Kenyatta had borrowed significantly from commercial lenders and countries such as China to fund massive infrastructure projects such as a train line connecting Nairobi to the port city of Mombasa and 11,000 kilometers (nearly 7,000 miles) of paved highways. The majority of such loans were commercial, which meant they had hefty interest rates. Meanwhile, the infrastructure failed to produce the promised revenue.

COVID-19-related inflationary pressures also persisted. Add to that the supply chain problems in Kenyan agriculture caused by Russia’s invasion of Ukraine. All of this combined meant that food and the overall expense of living were increasing in 2022 and so were Kenya’s debts as interests accumulated.

Its debt as of right now is $82 billion, of which $8 billion is owed to China. Other creditors include the IMF, the World Bank, the US, and Saudi Arabia. The debt also includes domestic borrowing. More over half of the government’s earnings goes toward debt service.

When Did the IMF Get Involved?

Kenya, led by Kenyatta and then-Vice President Ruto, reached an agreement with the IMF in April 2021 to receive relief.

That came in the shape of a 38-month program that the IMF said would assist Kenya in managing its debt and creating a favorable economic climate for essential private-sector investment. Kenya expects to receive $3.9 billion in financing through the projects. In addition, a $542 million climate fund was approved.

The loans were subject to conditions set by the IMF, which stated that raising taxes, lowering subsidies, and eliminating government waste would boost government revenue while lowering spending.

These actions began in the previous year. Ruto has prioritized the IMF program since 2022. Payments are determined by evaluating how successfully the government has implemented certain of the reforms on a regular basis. $941 million was freed during the January review.

IMF-Backed Reforms Implemented by Kenya

• Ruto halted the program’s gasoline and fertilizer subsidies as soon as he took office. In 2023, fuel subsidies were brought back in response to public outcry.
• The IMF supported Finance Bill 2023 as well. Passed in June 2023, the measure increased gasoline VAT from 8 to 16 percent and imposed a 2.5 percent housing fee on employed individuals. Last year, there were rallies against the bill in the streets, but the number of demonstrators was not as high as it was in June.
• The IMF supported the now-retracted Finance Bill 2024, which included tax increases. It was projected to bring in $2.7 billion to cover a budget shortfall and support development initiatives. Analysts stated that in order to reach certain goals under the IMF program, Kenya still needs to close that gap.
• Kenya was spared default on a $2 billion Eurobond that matured in June thanks to the IMF funds. There are no immediate repayment obligations for the nation.

IMF’s Reaction to the Protests

On June 27, one day after the protests descended into violence, Ruto reversed the planned tax increases. MPs were forced to escape when police opened fire on protestors who had climbed barriers to approach the parliament building. Ruto declared that his government would pay attention to the people and that he would not sign the bill into law.

The IMF declared it was keeping an eye on the situation as the nation slid into turmoil. IMF Director of Communications Julie Kozack stated, “Our main goal in supporting Kenya is to help it overcome the difficult economic challenges it faces and improve its economic prospects and the wellbeing of its people.”

Ruto reportedly spoke with IMF President Kristalina Georgieva in the days following the protests, though it’s unclear exactly what they talked about, according to the Reuters news agency.

Major contributors concur, according to diplomatic sources who spoke with the news agency, that the IMF should be more accommodating when it comes to Kenya’s ambitions. This month, the organization will be the subject of another review. The IMF stated during the review in January that although Kenyan authorities made reform efforts, tax collection was lagging.

What Lies Ahead?

Analysts predicted that Kenya will now probably need to present the IMF with a revised income plan.

Ruto unveiled more austerity measures on Friday, which are anticipated to close the hole left by the retracted tax bill. Ruto stated that in order to raise the necessary finances, his government would borrow roughly 169 billion shillings ($1.31 billion) and slash 177 billion shillings ($1.39 billion) from the budget for the fiscal year that started this month.

He also said that 47 state firms would be liquidated, the number of government advisers would be cut in half, public officials’ non-essential travel would be stopped, and the president and deputy’s wives’ budgets would be eliminated.

“I believe these changes will set our country on a trajectory towards economic transformation,” Ruto said.

The recent escalation of protests and the marginal decline in the value of the Kenyan shilling relative to the dollar dampened investor mood. However, analyst Oluwole predicted that the currency would likely strengthen in the upcoming weeks if the government proceeds with these budget cuts.

“They’re now basically doing everything they were supposed to do before,” she said. “When the IMF gives you conditions, you don’t need to pass on the bulk to the people when you know the situation in your country.”

Last month, GreatGameIndia reported that Nairobi erupted into chaos as angry Kenyans protested harsh new taxes and an eco-austerity program, resulting in the burning of the parliament building.