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Kenya: IMF Sets Tough Conditions for Cash-Strapped Kenya

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Kenya will have to implement tough conditions imposed by the International Monetary Fund following the approval of a new multibillion-shilling loan.

The lender has demanded that all public servants declare their wealth and that the cash-strapped government makes public the ownership details of all companies that are awarded public tenders as a way of curbing rampant theft of taxpayers’ funds.

In a statement announcing the approval of a $2.34 billion (about Sh257 billion) loan to Kenya on Tuesday, the IMF has also singled out nine key loss-making parastatals that will undergo a major overhaul to stop bleeding the public purse.

The statement comes amid a public outcry over the government’s growing appetite for new loans amid runaway corruption in the public sector. It spells out governance conditionalities and timelines that must be met within the three-year loan maturity.

“Key pillars of the agenda include the promotion of fiscal transparency via publishing procurement information including beneficial ownership data of companies awarded contracts; operationalising the Access to Information Act; review of the current legal framework for asset declarations of senior public officials and conflict of interest rules; and, given that corruption is inextricably intertwined with the need to launder its proceeds, an effective implementation of AML/CFT (anti-money laundering) measures,” states the IMF document.

The conditions are not entirely new and some of the measures being demanded are actually already in place to some extent, but the multilateral lender wants more specific action and implementation timelines than the Kenyan government has been committed to enforce.

“Concrete measures will include completing a draft blueprint that will identify necessary actions and legal reforms to enhance governance (by July 2021 supported by IMF); developing an integrated monitoring and reporting system (by September 2021); establishing a performance management monitoring and evaluation framework; and initiating a review of institutional structures,” sates the IMF.

The statement was released on a day when an online petition asking the IMF to withhold the latest loan until the cash-strapped government addressed runaway corruption recorded more than 200,000 signatures.

The conditions could usher in a fresh round of job cuts in the public service and tax hikes, similar to what happened with the Structural Adjustment Programmes of the 1980s.

The public debt load has already exceeded Sh7.2 trillion, equivalent to nearly two thirds (65.6 per cent) of the gross domestic product (GDP).

The Treasury is already petitioning Parliamentary to increase the statutory debt limit of Sh9 trillion, arguing that the ceiling will be breached in the coming financial year that starts in July.

President Kibaki’s administration between 2002 and 2012 had weaned Kenya off the reliance on external loans to finance its budget, but rampant corruption and lack of accountability in President Kenyatta’s government has seen the country sink into a debt abyss.

In a January radio interview, President Kenyatta made a shocking revelation that Kenya was losing Sh2 billion taxpayers’ cash every day to corruption.

Also high on the IMF’s list of demand for reforms is the requirement that nine state-owned-enterprises (SOEs) are overhauled to either return to profitability or to start operating more efficiently. The government has committed to audit nine key parastatals and reform them.

“A financial evaluation of the nine SOEs with largest fiscal risks to the Financial Year 2020/21 budget will be completed by end-March 2021 (prior action). This evaluation will serve as a basis for extraordinary SOE support to these SOEs in FY20/21, which should be limited to exigent needs (the supplementary budget provides for 0.3 per cent of GDP),” states the IMF statement.

The state corporations targeted for reforms include Kenya Airways (KQ), Kenya Airports Authority, Kenya Railways Corporation, Kenya Power, Kenya Electricity Generating Company, Kenya Ports Authority and the three largest public universities.

For the loss-making KQ, the government has committed to hire an independent consultant to audit the airline and find the cheapest way of restructuring it. Its net loss nearly tripled to Sh36.2 billion last year, the biggest ever in its history.

Kenya Power posted a net loss of Sh939 million for the year ending June 2020 after getting a Sh6.1 billion tax credit, while its pre-tax loss stood at Sh7 billion. The standard gauge railway (SGR) posted a combined operating loss of Sh21.68 billion in the three years to May, the IMF statement reveals.

The government has pledged to conduct a special audit of all the money spent on Covid-19 interventions and publish the results by the end of May.

“A forensic audit of spending going through the Kenya Medical Supplies Authority (Kemsa) and covering the March 13 – July 31 period was presented to Parliament in September 2020.1 It found numerous violations of the Procurement and the Public Finance Management Acts and inefficiencies in the procurement process. Parliament subsequently initiated investigations of the infringements identified by the audit,” states the IMF.