Recently, many nations in East Africa announced their budgets. These financial estimates clearly were influenced and funded by both the International Monetary Fund and World Bank. Leading the hoard is East Africa’s largest economy, Kenya.
To the casual observer, Kenya’s Treasury Cabinet Secretary, Prof Njuguna Ndung’u let the cat out of the bag during his budget speech. Prof Ndun’gu said, “Weare truly grateful, as a nation, to our development partners, who have, over the years, provided financial resources to support the implementation of government programmes, policy and structural reforms.”
“In particular, allow me to single out the multilateral institutions, specifically the World Bank, the International Monetary Fund (IMF), the European Union, the African Development Bank, and the many bilateral donors, institutions and governments that have walked the journey of socioeconomic transformation with Kenya.”
The Kenyan finance minister had excellent reason to applaud the IMF because it helped to provide a nation struggling under a debt of more than $73 billion a much-needed reprieve.
And in July, $410 million has been assured by the Fund, to finish the fifth review of Kenya’s Extended Credit Facility and Extended Fund Facility agreement, it struck an understanding with Kenyan authorities on economic changes and policies.
This is after the Fund was satisfied that President William Ruto’s administration is committed to fiscal consolidation, restructuring of troubled state corporations such as Kenya Airways and Kenya Power, and implementation of additional tax measures to lower the fiscal deficit.
Proof of this was given by a top executive at the international lender. IMF’s deputy managing director Antoinette Sayeh explained that “Looking ahead, continued strong commitment to fiscal consolidation over the medium term remains key to reduce debt vulnerabilities.”
And further compliance was noted in the “Additional tax policy measures, anchored in a Medium-Term Revenue Strategy to secure space for needed social and development spending, and improved spending efficiency, revenue administration, and public financial and debt management, will be key.”
However, the controversial taxing measures included in Kenya’s Finance Bill 2023, such as the imposition of a 1.5 percent home tax and a 16 percent value-added tax on fuel, have incited a popular outcry.
In order to reduce the budget deficit and manage borrowing, the IMF has urged Kenya to double the VAT on petroleum goods.
After the IMF board agreed a fresh loan for Kenya in 2021 totaling $2.34 billion to support the nation’s ongoing response to the Covid-19 outbreak and manage its debt risks, the fund revealed its drive for the fuel tax in a recommendation to the government.After widespread opposition to the full tax’s introduction from consumers and businesses, former president Uhuru Kenyatta was compelled to decrease the VAT on petrol to 8% in 2018.
The administration anticipated that the additional $357.14 million from the fuel’s 8% VAT would help them meet its IMF commitment to reduce the budget deficit to 4.4 percent of GDP. The Central Bank of Kenya increased its policy rate by 175 basis points to 9.5 percent in 2022 to battle the escalating inflation, in accordance with the IMF’s strategy of tightening monetary policy. Ms. Sayeh praised the CBK’s decision to tighten monetary policy, stating that “further tightening would limit second-round effects and keep inflationary expectations well-anchored while supporting external adjustment.”
Kenya received $1.5 billion in financing from foreign lenders in May of which a $1 billion loan came in from the World Bank.
In order to improve its deteriorating financial situation, support shilling stabilization, and increase foreign exchange reserves, the National Treasury sought to raise $2 billion between May and June.
However, it is thought that Kenya’s tax ideas could harm the nation by damaging investments worth millions of dollars.
More than 100,000 jobs could be lost as a result of the harsh tax law, according to the Kenya Private Sector Alliance, while the Kenya Association of Manufacturers predicted that the nation could lose Ksh150 billion ($1.07 billion) to capital flight.
Prof Ndung’u hinted at a possible retrenchment of lower-cadre staff in state corporations. He said the State Corporations Advisory Committee will start “rationalising staff establishment to keep them lean.”
President William Ruto’s Ksh3.68 trillion ($26.3 billion) expenditure plan is primarily reliant on meeting IMF and World Bank requirements, thus Kenya’s National Treasury has reopened negotiations with foreign banks to release an additional $100 million loan.
The money came from the syndicated commercial loan of $600 million, of which $500 million has already been released to pay for expenses during the current fiscal year.
The remaining $100 million will be spent in the upcoming fiscal year, Kenya’s National Treasury director-in-charge of debt management Haron Sirma said to This Week.
In the meantime, the Kenyan Parliament on Thursday authorized the conversion of Kenya’s debt ceiling from Ksh10 trillion to a debt anchor as a percentage of GDP, removing the last obstacle standing in the way of Kenya’s alignment with international best practices supported by the IMF. The level of the debt anchor, set at 55 percent of GDP in present value terms, was adopted by the Public Debt and Privatization Committee of the National Assembly.
Uganda
The IMF Executive Board wrapped up the fourth review of the Extended Credit Facility Arrangement in Uganda this week. With this task now completed, $120 million can be disbursed right now to support the “near-term response to the Covid-19 pandemic and boost more inclusive private sector-led long-term growth.”
The IMF has advocated changes aimed at “creating fiscal space for priority social spending, preserving debt sustainability, strengthening governance and reducing corruption, and enhancing the monetary and financial sector frameworks,” it was announced in a press release on Wednesday.
With this, the total amount disbursed under the ECF arrangement has reached roughly $750 million.
The Board also granted Kampala’s request for a waiver of non-observance of a performance criterion pertaining to the Bank of Uganda‘s cap on net credit to the federal government.
Although the economy is expected to expand by 6% and inflation to drop to 5%, the IMF warns that despite these projections, there are still significant risks to the outlook, including “further tightening of external financial conditions, a renewed pickup in inflation, which would increase borrowing costs through additional monetary tightening, and a stronger-than-expected drag of higher borrowing costs on private sector credit and investment.”
The IMF cautioned that while the conflict in Sudan is anticipated to have an impact on exports, the Anti-Homosexuality Bill, 2023, which was recently signed into law, may have a greater effect than anticipated on the availability of grants and external loans from development partners, as well as foreign direct investment flows and tourism.
In order to keep debt on a sustainable course, minimise the current account deficit, and safeguard foreign exchange buffers, the Bretton Woods institutions advocate for restrictive monetary policy, continued exchange rate flexibility, and a stable exchange rate.
According to the IMF team, efforts to boost social spending will also increase the likelihood of attaining more inclusive, sustainable, and long-term growth that is driven by the private sector.
This seems to relate to President Museveni’s pet project, the Ush1 trillion ($271.9 million) Parish Development Model, a government initiative begun in February 2022 to include 39% of Uganda’s impoverished families in the financial system.
Ush52.7 trillion ($13.9 billion) in Uganda is earmarked for the country’s poorest citizens, yet it ignores the country’s high cost of living.
In order to save the government Ush1 trillion ($271.9 million) annually—the same amount earmarked for the parish development project—Finance Minister Matia Kasaija has proposed austerity measures, including a block on new administrative units, domestic borrowing, and agency rationalization.
According to Uganda’s Finance Minister Matia Kasaija, “The economic growth strategy underlying the budget for the next fiscal year and the medium term includes Increased domestic revenue mobilisation and a reduction in non-concessional borrowing to ensure debt sustainability; effective implementation of the Parish Development Model and Emyooga initiatives; effective implementation of the various export strategies and enhancing access to global and regional markets; support for the development of the private sector; and increased investment in education and health care.
Kenji Okamura, acting chair and deputy managing director of the IMF, thanked Ugandan authorities for upholding their economic policy firmly “amid a challenging environment.”
At the end of December 2022, Uganda’s state debt was Ush80.8 trillion ($21.7 billion). Of this, Ush47.9 trillion ($12.9 billion) was owed externally, while Ush33 trillion ($8.9 billion) was owed domestically. By June 30, 2023, public debt is anticipated to reach Ush88.9 trillion ($23.7 billion).
According to the IMF, the banking sector in Uganda is well-capitalized, and liquidity has increased, but certain banks’ asset quality has declined.
Tanzania
The bright and rising star in East Africa is still Tanzania. Considering its status as the region’s second-largest economy, there are just four contributors to the government’s total Tsh2.18 trillion ($936.62 million) general budget support fund: the World Bank ($500 million), the IMF ($305.7 million), the African Development Bank ($106.63 million), and the European Union ($24.29 million).
According to Tanzania’s priorities, guidelines, traditions, customs, and cultures, it is our intention that the money pledged by development partners for the execution of the 2023–2024 budget will be allocated and utilised as agreed. IMF directors praised Dodoma’s strategy for fiscal reduction beginning in FY2023/24 in April, praising the emphasis placed on concessional borrowing to enable “much-needed priority investments and social spending.”
In line with the government’s reform priorities outlined in their Five-Year Development Plan, Antoinette Sayeh, the IMF’s Deputy Managing Director, stated that Tanzania’s reform program supported by the Extended Credit Facility focuses on completing the pandemic health and economic response, maintaining macroeconomic stability, and addressing long-term challenges to support sustainable and inclusive growth.
The Bretton Woods institutions continue to be the main sources of anticipated grants and concessional loans for the nation during the upcoming fiscal year. The World Bank has committed $1.2 billion, including $710 million for specific projects and $500 million for general budget support, and the IMF has set aside $305.7 million for general budget support.
Tanzania has also considerably raised its agriculture budget for the third year in a row, this time from Tsh1.21 trillion ($521.55 billion) in 2022/2023 to Tsh1.46 trillion ($629.31 million), as the Samia Suluhu Hassan government seeks to increase food production for both domestic and export markets and as protection against the vagaries of the weather and other external factors.
This maintains a trend during President Samia’s two years at the helm where the agro budget has increased by more than trebled from Tsh294 billion ($126.7 million) in 2020/2021 to Tsh954 billion ($411.2 million) in 2021/2022, and now to the current Tsh1.46 trillion ($629.31 million).
Aside from kickstarting the credit guarantee scheme, the agro sector priorities for the next fiscal year will include strengthening the government’s agribusiness initiative targeting the youth through establishing more farming blocks under the Building a Better Tomorrow programme introduced last year.
Rwanda
The toast of the West is known for reforms and that seems to still be in fashion in the East African nation of Rwanda. Now, Rwanda is implementing a series of reforms to fast-track transition into a low-carbon economy amid mounting climate change shocks.
After landslides and flooding ruined cattle and crops, at least 130 people died, hundreds were left homeless, and the country is still calculating the cost.
The changes follow the International Monetary Fund (IMF) Board’s budget support release of $98.6 million under the Resilience and Sustainability Facility (RSF) program to fund the IMF’s ambitious climate action plans.
While the precise number must be disclosed, the government provided tax exemptions and incentives in the budget for 2023–2024 to encourage the use of ecologically friendly products and reduce carbon emissions. The new fiscal year will maintain the zero percent import tariff rate for electric, hybrid, and electric bikes.
After landslides and flooding ruined cattle and crops, at least 130 people died, hundreds were left homeless, and the country is still calculating the cost.
The changes follow the International Monetary Fund (IMF) Board’s budget support release of $98.6 million under the Resilience and Sustainability Facility (RSF) program to fund the IMF’s ambitious climate action plans.
While the precise number must be disclosed, the government provided tax exemptions and incentives in the budget for 2023–2024 to encourage the use of ecologically friendly products and reduce carbon emissions. The new fiscal year will maintain the zero percent import tariff rate for electric, hybrid, and electric bikes.
According to the World Bank, Rwanda needs at least $11 billion by 2030, of which $6.9 billion is dependent on additional funding to support its plans to combat climate change. Through 2030, this equates to spending 8.8% of the nation’s GDP annually.
Rwanda became the first African nation to use the RSF facility when the IMF Board approved $319 million in December. The World bank and IMF anticipate that Rwanda will increase openness and accountability in the planning, implementation, reporting, and oversight of budget resources devoted to combating climate change under the terms of the facility. In order to raise more money for climate change, it is also anticipated that it will put into place a number of reforms to administer resources more transparently and effectively.
The IMF predicts that recent natural disasters like landslides and flooding would have a significant negative impact on Rwanda’s economy and demonstrate the nation’s extreme vulnerability to the effects of climate change.