What’s next after Kenya withdraws finance bill amid protests?
- June 30, 2024
- Posted by: OptimizeIAS Team
- Category: DPN Topics
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What’s next after Kenya withdraws finance bill amid protests?
Sub: IR
Sec: Places in news
Protests in Kenya Over Finance Bill:
- Protesters demanded President William Ruto’s resignation, even after he withdrew a tax hike bill.
- The bill aimed to raise $2.7 billion in additional taxes to reduce the budget deficit and borrowing, addressing Kenya’s public debt of 68% of GDP.
The Finance Bill:
- Presented before the start of the financial year, the bill outlines the government’s fiscal plans.
- The 2024/25 bill proposed tax increases on basic commodities (bread, vegetable oil, sugar) and new levies (motor vehicle circulation tax, eco levy). Exemptions included sanitary towels and diapers.
- Intended to fund development programs and cut public debt, but faced backlash for potentially increasing the cost of living.
Withdrawal of the Finance Bill:
- President Ruto withdrew the bill due to pressure from protests.
- Plans to cut the budget deficit through austerity measures, including cuts to the presidency’s budget and operational expenditures (travel, vehicle purchases, renovations).
- S&P Global Ratings stated Kenya might not achieve its fiscal targets without the tax hikes.
- The finance ministry warned that concessions on tax hikes would create a $1.55 billion deficit in the 2024/25 budget, necessitating spending cuts.
IMF loan to Kenya:
- In 2021, Kenya signed a four-year loan agreement with the IMF for $2.34 billion, and with another deal signed in May 2023, its loan volume rose to $3.6 billion. But IMF money for developing countries comes in tranches, and with conditions.
Unwritten Mandate of IMF:
- The IMF is theoretically designed to aid economic development and promote monetary cooperation and stability.
- In practice, it integrates newly independent former colonies into a global economic order favouring American capital.
- Voting rights at the IMF are quota-driven, based on dollar contributions, not democratic principles.
- The U.S. holds a 16.5% voting share; the G-7 countries together command over 40%, surpassing the combined voting power of all African and Latin American nations.
- As of March 2024, 31 of Africa’s 54 countries had outstanding loans with the IMF but lacked significant influence in the institution’s operations.
- UN Secretary-General Antonio Guterres highlighted this bias, noting the IMF framework reflects 1945 power relations.
Impact of Structural Adjustment Programs (SAPs):
- SAPs, adopted by the IMF from 1986, require cuts in public spending, privatization of state enterprises, reduction of import duties, and other measures promoting export-led growth.
- These policies often result in extreme inequality.
- A 2002 World Bank-funded study reported four main negative impacts of SAPs:
- Demise of domestic manufacturing and loss of employment for small producers.
- Agricultural, trade, and mining reforms harming small farms and rural communities.
- Triggering job losses.
- Reduced state role in providing essential services, increasing poverty.
- Despite the backlash, the IMF continues to impose SAP-like requirements.
Recent Adjustments and Continuing Influence:
- The IMF introduced ‘social spending floors’ to protect spending on education, health, and social protection.
- An Oxfam analysis found that for every $1 encouraged for public services, the IMF recommended cutting six times more through austerity measures.
- In 1994, the New York Times labelled the IMF and World Bank as the “overlords of Africa.”
- This influence persists, with economic policies in low and middle-income nations still heavily influenced by IMF decisions made in Washington.
Source: IE