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Why voices are rising against IMF-backed austerity drive

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The International Monetary Fund's stance on austerity has been blamed for stunting growth for countries in Africa. PHOTO | POOL

The International Monetary Fund's stance on austerity characterised by its advisory on reduced public expenditure and higher taxes has been blamed for stunting growth for countries on the continent.

According to a new report titled Fifty Years of Failure: The International Monetary Fund, Debt and Austerity in Africa, the multilateral lender has continued to call for austerity against what it terms as evidence of stifled economic development and human development across Africa.

“In practice, the IMF’s insistence that countries prioritize debt repayments, rather than seeking a systemic solution to debt, is a major obstacle to spending on health, education and climate action. Globally, six billion people are now facing austerity, largely owing to the IMF’s reluctance to accept that its economic model has failed,” reads the report in part.

Read: IMF to wire Sh58.8 billion loan to Kenya

In the case of Kenya, the country is in a multi-year arrangement with the IMF since April 2021 that is aimed at protecting the fiscal space and creating a conducive environment for private sector investment to boost economic growth.

To comply with the programme’s conditions, which encompasses funding for budget support, Kenya has been forced to expand the revenue base to include new taxes as a means to facilitate debt servicing.

The report warns of implications from the tax measures, including inflation and driving more individuals into poverty.

“While these tax reforms will indeed expand the tax base through the increased tax rates and real-time tax collections, there are concerns that the Finance Act 2023 sets Kenya on a trajectory of high cost of living where the gap between the rich and the poor will continue to significantly widen- as most of the proposed tax reforms are not progressive,” adds the report.

Instead, Action Aid has asked the IMF to do a distributional impact analysis before advising on austerity.

African States have been asked to reject the IMF’s advice on austerity, should the multilateral lender fail to rethink its stance and pursue a different path.

The global non-government organisation whose activities are targeted at the elimination of poverty and injustice has called for a collective resolution to the debt crisis, including the immediate cancellation of odious debts.

In July, the IMF Executive Board completed its fifth review of the Extended Credit Fund and Extended Fund Facility (ECF/EFF) arrangements for Kenya, allowing for the disbursement of Sh61.8 billion ($415.4 million) which included Sh16.4 billion ($110.3 million) from an augmentation of access.

The fund, at the same time, approved a new 20-month arrangement under the Resilience and Sustainability Facility, providing Sh82 billion ($551.4 million) to support the country in efforts to build resilience to climate change and catalyse further private climate financing.

The review was underpinned by the raising of additional tax revenues and rationalising spending.

The ECF/EFF arrangements were extended from 38 to 48 months through to April 1, 2025, to allow sufficient time for the implementation of the reform agenda and augmentation of access.

“The approval of the FY2023/24 budget and 2023 Finance Act are crucial steps to support ongoing consolidation efforts to reduce debt vulnerabilities while protecting social and development expenditures. However, recent challenges in resource mobilization and elevated uncertainty call for contingency plans that can be quickly deployed to ring-fence fiscal performance going forward. Tighter financing conditions also require a prudent debt policy and continued efforts to prioritize concessional loans,” the IMF noted.

Action Aid’s plea for a revamp of austerity is against the backdrop of the IMF Annual Meetings in Marrakech, Morocco, which run until Sunday.

Read: IMF backs phased rollout of new taxes amidst backlash

The IMF has revised downwards its annual GDP growth projections for sub-Saharan Africa to 3.3 percent, citing a sluggish global economy, worldwide inflation, high-borrowing costs and a cost of living crisis.

Tight markets

The Kenyan economy is nevertheless expected to expand by five percent from 4.8 percent last year, and to a higher 5.3 percent in 2024.

This comes at a time Kenya has started fresh talks with the IMF and other development financial institutions for a new loan to help it settle the $2.0 billion (Sh297.6 billion) Eurobond whose repayment is due in June 2024.

The government is leaning toward multilateral institutions following tightness in the global markets which has rendered the issuance of fresh debt to refinance maturing borrowing an improbable route to settle the maturity which is eight months away.

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