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