Andres Schipani in Nairobi and Aanu Adeoye, west Africa correspondent
Friday July 5, 2024
William Ruto is latest president of developing country caught between multilateral lenders and angry population
As Kenya reels from deadly anti-tax riots that have rocked east Africa’s most advanced economy, the target of protesters’ anger remains starkly clear in murals on the walls of central Nairobi — and it is not just the government.
“IMF keep your hands off Kenya,” said one painted slogan. As live rounds crackled and police deployed tear gas in Nairobi’s streets, 25-year-old protester Job Muremi said: “The IMF is involved in bringing this chaos upon Kenya.”
For many Kenyans, the unrest that forced President William Ruto last month to withdraw a finance bill aiming to raise more than $2bn in taxes has laid bare the role of Washington-based multilateral lenders in their country’s policymaking.
With the IMF seen as driving Ruto’s fiscal and austerity policies, thousands of young, often jobless protesters poured on to the streets with placards such as “We ain’t IMF bitches” and “Kenya is not IMF’s lab rat.” Nationwide protests raged even after the bill’s withdrawal, as demonstrators demanded Ruto quit and labelled him a “puppet” of the fund.
Kenya is not the only African country where citizens are rejecting austerity measures often imposed to appease multilateral lenders that demand fiscal discipline in exchange for cheap loans.
In Nigeria, where President Bola Tinubu has delivered a series of shock therapies — including reducing petrol subsidies, cutting electricity support and devaluing the currency — labour unions have gone on strike in protest. The country received a $2.25bn World Bank loan package last month, accompanied by praise for the “critical reforms” under way.
Olusegun Obasanjo, former president of Nigeria, told the Financial Times that the prescriptions from the IMF and World Bank “may work for developed countries” but were not right for emerging economies. African states should “be the architects of our own fortune”, he added.
“If the World Bank and IMF are the architects for us, we will fail,” Obasanjo said. He said staff at the lenders were “brilliant, first class in Cambridge and Ivy League schools” but unfit to make “recommendations for millions of people in developing countries”.
The IMF said meeting development needs in sub-Saharan Africa required “improvement in the prioritisation, quality and efficiency of public expenditure”. The fund “does actively take into consideration country specificities when advising on policy reforms. While each country’s context is different, building public trust and support for policies and reforms is essential for sustaining domestic ownership,” it said.
Supporters of the Washington-based lenders argue the IMF provides loans at interest rates far below those available commercially to countries that might otherwise risk default, while seeking to place them on a sustainable footing. It does offer debt relief, including to Somalia in December. The World Bank, which offers development funding, also seeks sustainable reforms.
Charlie Robertson, head of macro strategy at the emerging markets-focused asset manager FIM Partners, called the IMF a “convenient scapegoat”. “The alternative for most countries is borrowing from the IMF at a low percentage or borrowing at double digits from commercial lenders at home or abroad.”
Robertson described the IMF as the “lender of last resort” and said most of the fund’s prescriptions were decisions that governments would have to make anyway.
Many across Africa believe the belt-tightening regimes do little to reduce inequality and improve livelihoods, leaving leaders such as Ruto in the tight spot of needing to raise taxes and cut spending while knowing that doing so is likely to spark political upheaval. A similar pattern has played out in Latin America, most recently in Ecuador, where conditions attached to IMF loans in 2019 led to a backlash in the streets.
“African countries are watching what’s happening in Kenya,” said Nairobi-based economist Vincent Kimosop. “Those who are seated in high offices should not be sitting pretty.”
Other African countries will be forced to make tough decisions soon. Oil-producing Angola is attempting to cut fuel subsidies, while Ethiopia — which is gingerly emerging from a brutal civil war — is negotiating an IMF loan and reforms package. That may include a sharp devaluation of its birr currency, in a country struggling with high inflation and a chronic foreign currency crunch.
That familiar conundrum for emerging market leaders is sharpened by high government debt. Last year, a record 54 developing countries — equivalent to 38 per cent of the total — allocated 10 per cent or more of government revenues to interest payments, with nearly half of those in Africa, said the UN trade and development agency.
Kenya’s turmoil showed trouble can arise from “getting too in line with what lending officials in Washington want, while being too tone deaf with what people in Nairobi demand”, said a senior foreign diplomat in Nairobi.
Protesters in Kenya have been prepared to risk their lives to fight reforms initiated by what they consider a profligate government.
The catalyst for their anger was a bill increasing taxes on basics such as bread and sanitary pads. Demonstrators stormed parliament last week, unleashing a violent police crackdown that has killed at least 39 people.
Uhuru Kenyatta, Ruto’s predecessor and former boss, borrowed heavily from Beijing and international financial markets in the era of low interest rates to fund rail, road and port projects. But many of these schemes failed to generate enough income to pay back debts.
Ruto, a self-styled “hustler” with a rags-to-riches story, took office in 2022 vowing to ease the financial burden on Kenyans. But his attempts to levy new taxes have earned him the nickname “Zakayo”, the Swahili name for the biblical tax collector Zacchaeus.
The president, who is also one of Kenya’s wealthiest businessmen, is struggling to comply with a $3.6bn IMF bailout launched four years ago that requires raising revenues and slashing spending. Interest payments on Kenya’s debt have been eating up almost 38 per cent of annual revenues, said the World Bank.
“The protesters who are at the forefront . . . feel the IMF does not put out fires, that it starts them. We have a past experience, a difficult experience with the IMF,” said economist Kimosop, referring to the 1980s when, as a condition of emergency lending, the IMF demanded free-market reforms.
The structural adjustment programmes, or “SAPs”, imposed deep cuts on public services and insisted on privatisation as well as trade and financial liberalisation.
Nigeria too enacted a structural adjustment programme in the 1980s, leading to foreign exchange reforms and a stalled attempt to diversify away from oil. The IMF-linked programme continues to be blamed for destroying meagre social safety nets. Fela Kuti, the late Nigerian musician, sang that SAP spelt “Suck African People — suck dem dry”.
North African countries also have a long history with the fund. In March, Egypt floated its currency to help secure $8bn of IMF loans, leading to a sharp drop against the dollar. Despite widespread anger over spiralling prices amid high poverty rates, the streets have remained quiet after a ban on unauthorised protests.
The IMF is not universally disliked on the continent. After Ghana refused to contemplate an IMF programme to rescue a flailing economy in 2022, civil society groups demanded the government reconsider. Ghana went to the IMF not long after; the lender assured Ghanaians the programme would protect the vulnerable.
Kenya, which has never defaulted, sold new debt in February — at a steep borrowing cost of 10 per cent — allaying fears that it might follow defaults by Ethiopia, Ghana and Zambia. Before the protests, the IMF said Kenya needed to make “a sizeable and upfront fiscal adjustment” and praised the controversial tax increase.
After the protests, “the government may signal to the IMF that doing that is politically impossible”, said a senior official at a multilateral lender.
Ruto’s U-turn left his efforts to meet IMF targets in doubt. Credit rating agency S&P said Kenya was unlikely to achieve its fiscal targets, because “the administration will now become more cautious about taxing the economy”.
Responding to the protests, IMF spokesperson Julie Kozack said the fund’s goal in Kenya was “to help . . . improve its economic prospects and the wellbeing of its people”.
Vincent Kwarula, who launched a petition demanding the IMF cancel Kenya’s debt, rejects that. The IMF, he said, “has played a central role in perpetuating this crisis. We demand the IMF to keep its hands off Kenya and off Africa as a whole.”
Additional reporting by David Pilling in London and Heba Saleh in Cairo