IMF, World Bank fingerprints on President Ruto’s Sh3.68trn Budget

Treasury Secretary Nguguna Ndongo on Thursday read his first budget speech that had the hallmarks of the International Monetary Fund and the World Bank, a sign that President William Ruto is eager to implement the tough conditions that came with the Breton loans. Woods Foundations.

The 129-page budget letter sought to explain the motivation behind a far-reaching revenue-raising plan that would see the country adopt various policies from the two Washington-based institutions that Kenya has agreed to implement, including an increase in value-added tax (VAT). on fuel to 16 per cent.

Also, many items have been removed from the zero-rating list, which means they will start charging 16 percent sales tax, which is the measure always preferred by the World Bank.

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Dr. Ruto, whose first task after ascending to power was to phase out fuel subsidies in line with the terms of the International Monetary Fund, refused to back down from the proposal to increase value-added tax on petroleum products despite its wide popularity.

Professor Ndongo said in his speech that set the country’s total spending at Sh3.68 trillion for the fiscal year ending June 2024.

“In particular, let me single out the multilateral institutions, namely the World Bank, the International Monetary Fund, the European Union, the African Development Bank, and the many bilateral donors, institutions and governments that have embarked on the journey of socio-economic transformation with Kenya.”

The government expects to collect an extra Ksh50 billion from the eight percent value-added tax on fuel, helping it narrow the budget deficit to 4.4 percent of GDP, as promised by the International Monetary Fund.

The programme, which aims to help the country reduce the country’s debt risk, has also netted Kenya Power and national carrier Kenya Airways who are expected to handle the restructuring.

State companies, which had bloated payrolls, were on the IMF’s radar.

Professor Ndongo indicated that the government will soon rationalize staffing by reducing the number of support staff while increasing technical staff.

The government is targeting a ratio of 70 to 30 for technical staff and support staff, respectively.

“In addition, the National Treasury will henceforth only approve staffing budgets for state companies only that have approvals from the State Companies Advisory Committee, the Public Service Commission (PSC) and the Salary and Remuneration Commission (SRC),” he said.

The restructuring of Kenya Power and Kenya Airways aims to reduce the financial risk these state-owned companies pose to the taxpayers they have to bail out.

The 2023 Finance Bill, through which the state intends to generate additional revenues of more than 211 billion shillings, passed the second reading stage in the National Assembly, amid sharp disagreements between the majority and minority parties.

In total, the Kenya Revenue Authority (KRA) has given a target of Sh2.57 trillion for the fiscal year starting in July, up from Sh2.19 trillion in the current financial year.

Dr. Ruto’s government appears to have been rewarded by both the International Monetary Fund and the World Bank after it stuck to the liberal policy of global lenders of maintaining lower fiscal deficits by cutting spending and increasing revenue.

Kenya is set to receive an additional MYS 162.5 billion under the 38-month program with the International Monetary Fund after Dr Ruto’s administration demonstrated a firm commitment to implementing the tough tax policies agreed with the Washington-based institution.

In 2021, the International Monetary Fund considered that Kenya should double its value-added tax on fuel from the current rate of eight percent when crude oil prices fall, in a sign that the multilateral financier was open to delayed implementation to protect against growing public anger and pressure on High oil costs in the country.

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The International Monetary Fund told the government in April last year: “If necessary to achieve fiscal goals, take advantage of lower fuel prices by bringing value-added tax on fuel in line with the standard rate.”

In its latest report issued in December, the IMF indicated that a draft business plan to restore Kenya Power’s medium-term profitability by the end of July last year was one of the conditions, known as structural benchmarks, that were not met.

To enhance the financial sustainability of KPLC (Kenya Power and Light Company), the government will restructure its balance sheet, with a primary focus on large loan balances and accounts payable and receivable. This, in turn, will address KPLC’s current huge liquidity gap,” said Professor Ndongo.

As part of the restructuring, the government will settle NIS 19.4 billion in debt owed to the Rural Electrification Scheme (RES) operations and maintenance costs.

The government will also develop and implement a transformation strategy that includes reducing system losses from the current 22.4 percent to 14.4 percent by the end of June 2025 and creating a new governance structure in the utility company to give private shareholders a fair representation that reflects their shareholding. building.

The government will also put in place a turnaround strategy to help Kenya Airways, known as KQ by its international code name, turn a profit.

Another agreement Kenya had with the IMF was to launch an electronic procurement system that will be integrated into the Integrated Financial Management Information System (IFMIS) to automate the application of procurement law and regulations.

The Treasury also promised the International Monetary Fund that it would change the country’s debt threshold from a ceiling to a pillar of GDP. The Treasury Department has already submitted the bill to the National Assembly.

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