The IMF in Kenya: Regressive taxation as the new face of austerity

4 October 2023

Protesters barricade a road in Nairobi. Credit: Fred Mutune/Xinhua

In July, the IMF approved close to $1 billion in new loans to Kenya, rewarding the government for implementing a host of new taxation measures closely advised by the Fund. While the US praised the reforms as a door opener for American capital and Kenyan Treasury Secretary Ndung’u conveyed deep gratitude to the IMF and World Bank, citizens took to the streets in wide-spread protests in which around 30 were killed and hundreds arrested, as the new tax hikes threaten to aggravate an already severe cost of living crisis. A public letter from the Okoa Uchumi campaign, representing 19 Kenyan civil society organisations, warned that “the glaring lack of consideration of the effects of austerity measures on growing inequality, hunger, and poverty in the country” was “harming the most vulnerable of our population” (see Dispatch Springs 2021). Moreover, the campaign called out the lack of transparency in imposing these measures, pointing out that civil society’s “collective contributions to the process has deliberately been ignored by the IMF, and the consultations are being used to legitimise a process that continues to put [the] majority of Kenyans at a greater risk of hunger and poverty.”

The new tax regime – enshrined in President Ruto’s Finance Act – includes doubling value added tax (VAT) on fuels from 8 to 16 per cent, raising taxes on food, mobile money transfers, digital content creation and salaries, “rationalising” public sector employment, as well as taking a levy from all employees and employers to fund a problematic public-private partnership for “affordable” housing (see Observer Spring 2019). The Finance Act was already challenged in court and suspended, but the VAT measures were pushed through. Without affordable green energy alternatives available, rising fuel prices impact poor consumers and small business owners most severely, especially women, as prices for transport, cooking and many associated products go up (see Observer Autumn 2021; Briefing, The IMF, Gender Equality and VAT). Prices for food staples like maize have more than tripled. On the other hand, private wealth, land holdings and large corporations remain unscathed by the reforms. Meanwhile, the violent police crackdown on protesters has prompted outcry from Amnesty International and the United Nations.

Raising taxes from the poor to pay debt undermines growth and productivity

Okoa Uchumi warned that the IMF’s “focus on stabilization rather than growth and development” threatened not only to harm the poor and the provision of gender-responsive public services, but also come at the expense of economic growth and productivity as excessive taxes “undermine entrepreneurship efforts.” Proposed tax increases on smallholder farmers not only threaten food security and livelihoods for the poorest, but also further burden a sector that already operates under small margins and environmental challenges.

[Civil society] consultations are being used to legitimise a process that continues to put [the] majority of Kenyans at a greater risk of hunger and poverty.Okoa Uchumi campaign

The supposed justification for this vast tax regime is that it will restore fiscal balance and reduce Kenya’s reliance on external debt. About half of the projected revenues will go to debt repayment. Ironically, just six months into Ruto’s presidency, debt had already ballooned from about $28.7 billion to $35 billion as of April 2023. The priority does not seem to be supporting economic transformation or even long-term debt reduction, but austerity reforms that enshrine an extractive model where more and more of citizens’ incomes are channelled to international creditors (see Observer Spring 2023). With this dynamic, Kenya is unlikely to escape the debt trap, and the next round of over-borrowing seems only a matter of time.