A crowd of youthful protestors gathered at the junction of Kimathi Street and Kenyatta Avenue during day 03 of the Occupy Parliament Protest on June 20 2024.
Photo credit: Francis Nderitu | Nation Media Group
We are all stunned by the street protests by the youth and by the rise of what has been dubbed as the anxious generation against the tax proposals contained in the Finance Bill, 2024.
The revolts seem to have come from nowhere and now look like they are capable of going anywhere. Some analysts are drawing parallels with the Arab Spring. We have tried to explain it to the ubiquity of the internet, smartphone apps and internet net platforms. The zoom generation are arguably the first generation to have grown up entirely on the internet.
Street protests were supposed to be the preserve of political parties- stuff for the generation of old populists and perennially wrangling politicians.
Yet there is far much more to the anti-finance Bill than the rise of the anxious generation. What we witnessed this week was a well-documented example of a popular backlash against policy prescriptions by the IMF. We are being taken through a gripping lesson on the social and political infeasibility of IMF-supported adjustment programmes.
I ask: what happens to diplomatic relations and dealings between a developing country like Kenya and the IMF when the bitter pill prescriptions are rendered inoperative by street demonstrations and when the protest becomes widespread?
When political protests spread throughout the country and force you to rescind and abrogate what you have agreed and signed off with one of the world’s most powerful institutions, what are the likely implications?
The incontrovertible truth of the matter is that the prescriptions and tax proposals in the Finance Bill originated from IMF prescriptions.
Here is the background.
Last year, we went to the IMF-cap in hand- and requested technical assistance to help us develop and put together a ‘medium-term revenue strategy’ (MTRS).
It was the staff of the IMF who-while in the process of designing for us the revenue strategy- came up with the observation that Kenya was the only country in East Africa that had experienced a protracted decline in its tax-to-GDP ratio since 2014.
It was the staff of the IMF who said that too many tax incentives and subsidies was why our tax take to revenues was below the levels in Tanzania and Uganda and Rwanda.
The staff of the IMF helped us in putting together a comprehensive revenue plan that came complete with suggested and specific tax proposals. The scope of the plan covered a long period, stretching all the way to 2027.
On November 27, the Cabinet approved the MTRS strategy. Thereafter the government developed a sequenced implementation matrix for all the tax proposals and agreed with the IMF that a good number of the measures would be introduced in the Finance Bill of 2024.
Under the agreement with the IMF, the tax measures to be implemented across several sectors, included, the adoption of a vehicle circulation tax, removal of exemptions of interest on infrastructure bonds, removal of VAT exemptions on import duties and finally, introduction of increases in excise rates for money transfers and telecommunications services.
Clearly, the amendments that were required to be introduced at one go were just too many. Some analysts term it as legal litter of our fiscal laws.
Yet by bowing to political pressure and capitulating to street demonstrations. By throwing out the amendments that it had agreed to implement under the IMF programme, President William Ruto’s administration had clearly taken a major diplomatic gamble with the Bretton Woods.
A collision course with the IMF is something the government can hardly afford at the moment. We have a massive Eurobond payment coming in June next year.
The gravity of the parlous state in which government finances are in right now is laid bare in the latest exchequer issues out turn for May that has just been published by the National Treasury.
The numbers show that total debt service to revenues for May 2024 was at 70 percent. The room to spend money on anything else other than debt is narrowing by the month. We continue to titter towards a debt cliff.
More worrisome from the May budget outturn numbers is the fact that the government appears to be experiencing difficulties in paying both pensions and allowances of employees of constitutional offices.
Over the past decade, the IMF has been the World’s most powerful and brutal enforcer of austerity measures. Apart from high taxes, the regime they want us to implement here includes a freeze on public sector employment, sharp reduction in government spending, allow the exchange rate to be market-determined, allow the interest rate to go up, eliminate fuel subsidies and implement a robust privatisation program.
We are in a bind because the government is in dire financial straits while the generation Z is in a fighting mood.
The writer is a former managing editor of The EastAfrican.
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