NAIROBI – Kenyan President William Ruto held a phone conversation with International Monetary Fund (IMF) chief Kristalina Georgieva following his withdrawal of $2.7 billion in proposed tax hikes, which had sparked deadly protests, according to two diplomatic sources who spoke to Reuters.
The proposed tax increases were a key component of policy reforms agreed upon by Kenya and the IMF as part of a $3.6 billion lending program. The withdrawal of the finance bill containing these tax hikes is expected to impact Kenya’s ability to meet crucial program targets. Despite this, the government is not in immediate need of IMF funds after successfully issuing a new seven-year bond to repay a bond initially valued at $2 billion.
Protesters in Kenya, particularly young people, have criticized the IMF for its perceived role in driving the proposed tax hikes.
The details of the conversation between Ruto and Georgieva were not disclosed by the sources, who spoke on condition of anonymity. However, they indicated that there was consensus among major donors that the IMF needed to exhibit flexibility regarding program targets in light of Kenya’s decision to withdraw the tax bill.
One source emphasized that the Kenyan government should demonstrate a commitment to reducing wasteful spending, combating corruption, and enhancing accountability in exchange for the IMF’s flexibility.
In early June, the IMF reached a staff-level agreement with Kenya on a policy package essential for completing the seventh review of the lending program, which was expected to unlock several hundred million dollars in disbursements. However, this agreement has not yet received approval from the IMF’s Executive Board.
“We remain deeply concerned by the recent tragic events in Kenya and maintain close ongoing and constructive dialogue with the Kenyan authorities,” an IMF spokesperson said when asked about the call. Ruto’s spokesperson did not respond to requests for comment.
Following the shelving of the bill, Ruto has promised to include austerity measures in a supplemental budget but has also suggested that the government will need to significantly increase borrowing for the 2024/25 fiscal year. An IMF spokesperson stated last week that their primary goal is to assist Kenya in overcoming its economic challenges and improving the well-being of its people.
“I think the IMF will continue helping Kenya, but the disbursements are more likely to resume toward the end of this year,” said Pavel Mamai, managing partner and portfolio manager at Promeritum Investment Management. “The IMF will basically ask Kenya to regroup and present a new reform plan.”
Since mid-June, at least 39 people have been killed in protests, according to a government-funded human rights organization. Anti-government demonstrations have continued even after Ruto pulled the bill, although with lower turnout.