Issue No. 42

Kenyan Protests, Corruption and the IMF

In the past weeks, Kenya has been rocked by widespread demonstrations. Dubbed the 'Gen Z Protests,' young protestors repeatedly took to the country's towns and cities before unrest escalated dramatically on 25 June, culminating in the killing of dozens of protestors by police and the burning of sections of Parliament in Nairobi. For a moment, it appeared that Kenya was teetering on the edge of full-blown civil unrest. Initially protesting the government's annual finance bill, demonstrations have now morphed into broader demands for consequential economic and political reform. Years of corruption of the country’s elite now appears no longer tenable in the face of sustained anger.
 
Under immense domestic and international pressure, Kenyan President William Ruto eventually conceded-- withdrawing the Finance Bill 2024 and committing to implement austerity measures aimed at taming government largesse. Regressive levies on a range of daily goods, fuel, property, transactions, and others targeting the informal sector had been proposed to sustain costly debt servicing as part of broader negotiations with the International Monetary Fund (IMF). Expected to generate a record USD 2.7 billion in revenue, the Finance Bill was intended to reassure international investors and creditors that Kenya could continue tackling its debt-- which stands at over USD 82 billion.
 
Yet much of the Bill would have impacted Kenya's vulnerable, jettisoning expenditure on welfare programmes for the elderly and new mothers, among others. With the Finance Act 2023 having already reduced take-home pay with increased statutory deductions and direct taxes, it was feared that the proposed levies would spell more pain for most Kenyans already wrestling with the high cost of living. The brazen displays of wealth by parliamentarians passing laws to raise taxes and cut public spending were particularly galling. It was also typical of IMF-proposed solutions-- promoting a smaller state and greater domestic revenue collection.
 
Clearly, the optics, content, and response of the Finance Bill 2024 were handled extremely poorly by different branches of Kenya's government and security architecture. The government alone has not faced the ire of protestors, though; demonstrators have also targeted the perceived interference in Kenya's fiscal policies by the IMF. Placards and graffiti have accused the government of forcing an IMF-sponsored bill on the country, while Kenyans thronged the institution's social media platforms and sent mass emails to the IMF-Kenya team. For many Kenyans, the IMF symbolises external interference by Western imperial powers, arguing that it is a body that entraps the Global South and perpetuates inequality. Kenya's other creditors, particularly China, have emerged free from criticism, though, surely to the glee of Beijing and Moscow.
 
In many ways, the IMF and the other Bretton Woods Institution of the World Bank are relics of another era. Established in 1944 by the Allied powers to promote international monetary cooperation and regulation in the post-World War II era, the IMF and World Bank have long been underwritten by the US Dollar and, in turn, backed by the world's largest military power. It was created at a moment when just four African countries were independent-- Egypt, Liberia, South Africa, and Ethiopia. In the decades since, as globalisation has taken firmer root, the IMF has sought to open developing markets and promote laissez-faire economics. In turn, some argue that the IMF has squarely represented the interests of its majority stakeholders, e.g., Western countries and particularly the US, and has continued to drive a punitively unbalanced trade deficit against the Global South.

While there was little significant relationship between the international financial body and Nairobi in the 1970s, Kenya's economic downturn in the 1980s and 1990s precipitated greater lending and, in turn, necessitated a series of destabilising and unsuccessful reforms. In the 1990s, the body was also widely criticised for its treatment of Africa's economic troubles and for pursuing a rigidly free-market and deregulatory approach that did not chime with the continent's needs. To give some credit to the organisation, it is less rabidly ideological today and more practical than 30 years ago, but it nevertheless is culpable in the crisis facing Kenya today, as is China and other creditors.
 
The financial crisis facing Kenya today is in large part a legacy of the Uhuru Kenyatta administration’s piling on of vast amounts of debt through dubious infrastructure projects. Enormous quantities of money were siphoned off for elite networks through commercial and Chinese financing that developed projects such as the Standard Gauge Railway line between Nairobi and Mombasa. These deeply corrupt, costly undertakings have been criticised for failing to produce expected financial returns, while many of the commercial loans taken out had high interest rates. As a consequence, today, around 50% of government revenue is wasted on external debt repayment rather than tackling Kenya's ailing schools or crumbling hospitals. Protestors are further demanding accountability for these corrupt projects, targeting responsible MPs and officials.
 
The good times of plentiful money couldn't last forever, though, and the Kenyatta government was eventually forced to agree to major reforms in exchange for further IMF loans in 2021. A 38-month programme to provide USD 3.9bn was reached in exchange for the raft of short and long-term revenue-raising and expenditure-slashing measures that appeared in Nairobi's recent controversial budget. Privatisation of government bodies was also part of the loan agreement.
 
While President Ruto himself has been a vocal critic of global financial architecture and has sought to champion lending reforms at the UN and G7, his economic policy was, in essence, already decided before he stepped foot in the State House. If the Kenya Kwanza government was unable to meet its foreign and domestic debt obligations, economic collapse would be on the cards. The tanking of the Kenyan Shilling against the US Dollar in 2023 was in large part due to fears that Nairobi would be unable to pay back its copious debts. These fears eventually proved unfounded, but only due to the IMF's bridging loan of USD 2 billion to pay back a maturing 10-year Eurobond.
 
In recent years, Kenya has been much celebrated as a bastion of stability in the tumultuous Horn, and to a large degree, this is true when one compares the country to Ethiopia, Somalia, or Sudan. The elevation of Kenya as a Major Non-NATO Ally by the US partially reflected this, though it was perhaps more about a shoring up of a damaged American position on the African continent. But beneath the veneer, the corruption of Kenya’s political elite has now come back to bite it after attempting to pass on the costs of their own enrichment. Nairobi finds itself in an extremely difficult situation of largely its own making, caught between public outrage and revised austerity targets, and the IMF's conditions and escalating debt burden. The government has few palatable options following the Bill's withdrawal, with the IMF also rumoured to be considering suspending its next tranche of funding. It is unlikely that Nairobi will currently want to embrace comprehensive debt restructuring, but it may eventually have little choice but to follow Zambia and Ghana's path. Whatever direction is taken, further economic pain for the masses is all but certain.

By the Horn Edition team