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Economy: IMF Spreads Distress, Suffering, Misery across Africa as New Structural Adjustment Looms

By August 9, 2023No Comments
Fuel Price increase protests in Nigeria.jpg

The World Bank estimates that Africa is paying $68.9 billion in debt servicing per year, as countries spend larger and larger portions of their budgets on servicing debt.

To get out of the debt hole, countries are taking unpopular measures that in the case of Kenya have even resulted in the death of citizens, as the government seeks to subdue the population protesting the harsh economic regime.

Despite the opposition, the Kenyan government seems united in its implementation of these measures, as exemplified by a recent court ruling.

The ruling by Kenya’s Court of Appeal giving President William Ruto’s government a go-ahead to start implementing a raft of tax measures that already caused cost of living protests suggest a fresh set of structural adjustments are underway for many African countries that went on a borrowing spree to build infrastructure.

On August 28, Kenya’s Court of Appeal overturned a lower court’s ruling from last month that had prohibited implementation of the Finance Act.

Kenya’s law society has since gone back to court to block the same Finance Act.  However, for now President Ruto’s government, which came to power last year in a closely contested election by promising to invest heavily in reducing the cost of living for the working class, is free to implement tax measures that have origins in Kenya’s distress negotiations with the International Monetary Fund (IMF).

Civil society and members of the opposition had hoped the court would shield the population against the new measures in the Finance Act, but the court of appeal argued that it would be difficult for government to implement its budget without the taxes that Parliament passed.

With a debt stock of approximately $70 billion, Kenya is one of 21 countries in Africa that are either distressed or bankrupt.

The ever-expanding debt servicing obligations are forcing countries on the continent to reduce expenditure on social services such as education, while at the same time demanding more taxes.

Except for Zambia, where a popular President and the fact that the country was already bankrupt allowed for implementation of reforms with limited push back from civil society, many African leaders are using dictatorial tactics to increase taxes and defund some social services.   

Dr. Fred Muhumuza, a lecturer of economics at Uganda’s Makerere University, however, says African countries have no choice but to take the painful structural adjustments.

Dr. Muhumuza says the likes Kenya, Ghana, and Zambia took expensive money from the international bond markets. He also points out that African countries’ fascination with loans from China fueled the debt crisis for Kenya, Ethiopia, Zambia, and to some extent Uganda.

“At some point China was even vending loans and would advise countries on which infrastructure to build,” he says.

He says that since this infrastructure were in some cases leading to nowhere, the anticipated economic growth that should have resulted in increased government revenue did not materialize and African countries have to pay the price, of seeking money from the IMF.

The IMF’s money usually comes with some punishing conditions for the population and not necessarily for the leaders that accumulated the debt.

The International Monetary Fund (IMF) has already come to Kenya’s rescue promising $1 billion dollars on the condition that Kenya’s government reforms its economy by increasing revenue collection, while at the same time reducing public expenditure.     

The choices that the government has taken to increase revenue have been unpopular, as the introduction of the Finance Act, was cited as one the reasons that prompted the cost-of-living protests in Kenya.

The country’s opposition leader, Raila Odinga, who says he had not expected the government to be that brutal in subduing the population, has since indefinitely, suspended the cost-of-living protests.

As at the end of July, Amnesty International reported the death of at least 30 Kenyans, killed as government used teargas and bullets to subdue members of the public out in the streets expressing their displeasure at the rising costs of living and Parliament’s decision to pass the Finance Act.     

Among other things, the Finance Act increased value added tax (VAT) on fuel from 8 per cent to 16 per cent.

Analysts have blamed the doubling of value added tax for the decision by the Petroleum Regulatory Authority (EPRA) to increase by 7.4 per cent the prices of kerosene, petrol, and diesel.

Kerosene is a product that is largely used for lighting and cooking in low-income households. Since 2017, Kenya has maintained a ban on the production of charcoal within its borders. As a result, poorer members of the population and especially those who live in urban areas look to other energy sources for cooking including kerosene.

The opposition in its disagreement with the fuel taxes says increasing the price of petrol and diesel also has a spiraling effect on transport costs, which then fuels inflation as prices of necessities such as food are also bound to go up.

Kenya’s Parliament also introduced a 1.5 per cent housing levy on salaried workers. The housing levy, which means a reduced pay slip, coming weeks after Kenya decided to increase other statutory deductions off workers’ pay has been a bitter pill to swallow.

Kenya recently increased the National Social Security Fund (NSSF) contribution by employees and their employers from a block figure of Ksh400 ($2.8) to 12 per cent of the workers pensionable income.

The President also announced in May a change in the National Health Insurance Fund (NHIF) contribution, from Ksh500 ($3.5) to 2.7 per cent of income.

The pay slip shrinking levies, coupled with reduced privileges, less than a year since President Ruto’s Kenya Kwanza government came to power on a ticket that promised a reduced cost of living for the working class, have left many citizens unhappy.

While the physical protests in the streets have ended due to state brutality, on Twitter, which has since been renamed X by its new owner Elon Musk, Kenyans are currently objecting to different new measures including the withdrawal of the automatic government subsidy provided to all students that qualify to join university.

The government announced in May a change in its government sponsorship plans, but Kenyans are only reacting now, as the country’s Cabinet Secretary for Education Ezekiel Machogu just announced the higher education financing portal.

Muchogu says students have until August 27 to have completed applying for government aid. Kenya’s government, which has since 1991 subsidized university education so that government sponsored students would pay Kshs16,000 ($112) changed the rules.

David Ndii, Chairperson of the Kenyan President’s Economic Council says the government will now provide the biggest proportion of scholarship to what he described as the vulnerable and extremely needy students.

This category will respectively need 18 per cent and 30 per cent more money in tuition fees that the government can provide through its new loan scheme.

The category, Mr. Ndii described as needy and less needy will rely mostly on government loans for tuition. Many Kenyans on X are unhappy with their government’s move saying it is unlikely that the scholarships and loans will reach deserving members of the population.

In a country where majority working members of the population struggle to pay their children’s tuition anyway, narrowing the number of beneficiaries is an unpopular move, but one that countries such as Nigeria have also adopted to reduce government expenditure.

Introducing the student loan scheme for university students was one of President Bola Ahmed Tinubu’s first actions as Nigeria’s head of state in June, as he too set the stage for relieving his government of the burden to subsidize tuition.

Just like Kenya and neighbours Ghana, Nigeria is struggling over a budget deficit. To reduce the deficit, President Tinubu has taken different actions including the removal of government fuel subsidies.

Bright Simmons, Vice President, of the Imani Center in Accra Ghana says the removal of fuel subsidies in Nigeria is good, as it was benefiting rich people with fuel guzzlers, while poorer sections of the population do not get much out of it.

He says that in 2022, Nigeria spent $10 billion out of their $22 billion revenue on fuel subsidies, and it makes no sense to continue on this path. However, countries whose leaders are removing these subsidies do not find the move popular.

Nigeria’s President Bola Tinubu delivers his speech after taking oath of office during his inauguration at the Eagle Square in Abuja, Nigeria on May 29, 2023. Nigeria’s new president Bola Tinubu, sworn in on May 29, 2023, has promised to unite Africa’s most populous nation and tackle insecurity as “top priority”. The 71-year-old succeeds 80-year-old former army general Muhammadu Buhari of the same party, who stepped down after two terms in office, leaving a country facing a sea of economic troubles and security challenges. (Photo by KOLA SULAIMON / AFP) (Photo by KOLA SULAIMON/AFP via Getty Images)

Nigerians on X have complained about the fuel subsidy removal, just like the Kenyans did in September last year, when Ruto took the same path in the first month of his presidency.

Zambia is another spot where President Hakainde Hichilema has had an easier ride implementing reforms required by the IMF, the civil society wrote articles and offered opinions to oppose the removal of the fuel subsidy.     

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