The International Monetary Fund (IMF) has adviced President William Ruto’s administration to stand firm on implementing the new tax measures despite mounting opposition protests.
In the July 2023 Country Report, IMF’s Risk Assessment Matrix predicted that protests over the high cost of living, which were spearheaded by former Prime Minister Raila Odinga, would likely occur.
However, the IMF classified this risk as medium, indicating that the ongoing demonstrations are not perceived as a significant threat to the President’s plans.
IMF analysis highlighted that unrest could resurface due to protests against the increased cost of living, the necessity to raise additional taxes, and opposition-backed electoral processes. Nevertheless, the IMF urged the country to remain committed to the reform agenda outlined in the program, even as pressure mounts from various groups, including the Catholic Church, for the government to repeal the Finance Act.
The Finance Act 2023 introduced several measures, such as the 1.5 per cent Housing Fund and the VAT hike on fuel products from 8 per cent to 16 per cent, which could lead to higher prices for essential commodities. The Energy and Petroleum Regulatory Authority (EPRA) has already increased the prices of Super Petrol and Diesel despite a court order to suspend the implementation.
Currently, a liter of Super Petrol is selling at Ksh195.53, and Diesel is priced at Ksh179.67.
IMF’s review suggests that the prices of basic commodities may also rise due to other global factors. To address fiscal pressures, the IMF recommends keeping domestic fuel prices aligned with global fuel prices while reducing expenditures. In the event of persistent shocks, the IMF suggests tightening monetary policy to ensure stable inflationary expectations.
Despite a myriad of challenges foreseen, the IMF urges Ruto to adhere to the recommended reforms. The IMF warns that inadequate implementation capacity in the government’s initiatives could lead to higher budget deficits, increased debt ratios, reduced private investment, and weakened economic growth.
