The bright side of new IMF debt

Very soon, we will be forced to swallow the International Monetary Fund’s bitter pill. As usual, support from the IMF comes with harsh conditions with the regime of prescriptions, almost invariably, containing new tax increases, spending cuts, and elimination of subsidies. Today, the euphemism for these IMF conditions is fiscal consolidation.

It was Jeffrey Sachs who labelled the IMF the Typhoid Mary of emerging markets. But when you scrutinise the economic circumstances in Kenya and study the backdrop against which we have invited the Bretton Woods institution here, you will see that the new engagement is not altogether without a bright side.

In providing emergency assistance to African countries whose economies have been ravaged by the coronavirus pandemic, the IMF is emerging as a critical source of pressure for targeted reforms on corrupt African regimes.

The level of corruption that has exploded around Covid-related expenditures in the developing world has been staggering in scope. Here in Kenya, we coined the phrase Covid millionaires. Yet a Kenyan following trends in corruption surrounding corona- related expenditure around the developing world will be left with a feeling of de javu.

In South Africa, we witnessed how corrupt elites in the ruling African National Congress (ANC) were implicated in fraud over the supply of personal protective equipment.

Amid the deluge of coronavirus-related graft reports in the media, South Africa’s president Cyril Ramaphosa was prompted to write an open letter to the ruling party in which he acknowledged that “the ANC and its leaders stand accused of corruption”.

But where I saw the most striking parallels and similarities with corona graft cases in Kenya was in the tiny Central American country of El Salvador.

I read that investigation authorities there were probing the country’s ministry of health for various dodgy dealings including purchase of over-priced masks, purchase of rubber boots worth millions of dollars from a company linked to the family of the minister for health and purchase of millions of dollars-worth of medical supplies from a small and opaque Spanish company that sells motor vehicle spare parts.

It is as if corrupt elites in our country had travelled all the way to Central America to copy how the corruption game was being played there.

We must now wait and see how our new engagement with the IMF will play out and whether the government will be forced into making new, measurable and time-bound anti-corruption commitments to the IMF before funds are released.

South Africa, which has so far received $ 4.3 billion Covid emergency financing from the IMF, was made to pledge many anti-corruption commitments, including having to publicly disseminate all Covid-related procurement contracts with details such as companies that have been awarded contracts and their beneficial owners.

The prescriptions template for Nigeria that has so far received $3.4 billion for the corona pandemic from the IMF contains similar anti- corruption commitments. They include strengthening the asset declaration framework and creating specific budget lines that allow better and transparent tracking and reporting on Covid expenditures.

Away from corruption and governance, the new engagement with the IMF is an opportunity to clean budget figures, allowing better and more accurate assessment of the country’s fiscal risks. We urgently need solutions on how to minimise the cost of servicing public debt to the taxpayer. We will need an independent audit of our external debt register. We need to reassure financial markets of the country’s creditworthiness.

Rising public sector wage demands and spiralling pension liabilities represent a major fiscal risk to the government.

With a new IMF programme, there is an opportunity for these risks to be valued and assessed more transparently.