In a recent development, major shareholders of the International Monetary Fund are encouraging Kenya to seek an IMF assessment of corruption and governance issues. This move comes as part of efforts to revive lending that has been halted due to the suspension of tax increases, according to two diplomatic sources who spoke on condition of anonymity.
The IMF, established in 1944 at the Bretton Woods Conference, has been a crucial partner for Kenya since the country joined on February 3, 1964. As the largest economy in East Africa, Kenya has been implementing various economic reforms to improve its business environment. However, recent events have complicated the nation's fiscal landscape.
In June 2024, the Kenyan government withdrew $2.7 billion in tax increases following mass protests that resulted in over 50 fatalities. These demonstrations brought issues of corruption and misgovernance to the forefront, with young protesters expressing concerns about the misuse of tax funds for politicians' extravagant lifestyles.
The withdrawal of tax hikes has led to the suspension of approximately $600 million in disbursements under an IMF plan set to expire in 2025. This situation has prompted Western governments to advocate for a governance diagnostic, which must be requested by Kenya itself.
"Such a request would facilitate discussions about further IMF support."
The IMF, headquartered in Washington, D.C., has published governance diagnostic reports on 14 countries since 2014, including Ukraine, Cameroon, and Sri Lanka. These assessments are part of the IMF's enhanced framework for engagement on governance and corruption, introduced in 2018.
John Mbadi, Kenya's Finance Minister, has indicated that the government is exploring new revenue-raising measures. In August 2024, he mentioned the possibility of reinstating some measures from the scrapped bill. However, by September 2024, Mbadi announced plans to seek public input on new legislation to boost revenue.
Kenya's economy, which has experienced significant growth with an average annual GDP rate of 5-6% in recent years, now faces the challenge of narrowing its fiscal deficit. The country's population, estimated to be over 55 million as of 2024, relies heavily on agriculture, which accounts for about 33% of GDP.
As Kenya navigates these economic challenges, it must balance the need for fiscal stability with addressing governance concerns. The IMF's potential assessment could play a crucial role in shaping the country's economic future and its relationship with international financial institutions.
The outcome of this situation will be closely watched by the international community, as it could set a precedent for how the IMF, under the leadership of Managing Director Kristalina Georgieva, addresses governance issues in its member countries. As Kenya works towards resolving these challenges, it remains to be seen how the government will reconcile its fiscal needs with the demands for transparency and good governance voiced by its citizens.