KENYANS TO FEEL PINCH AS TREASURY IMPLEMENTS IMF’S ‘PAINFUL’ REFORMS
KENYAN households face a further squeeze on their finances as Treasury moves to fully implement the International Monetary Fund (IMF)’s financial assistance programme and undertake ‘painful reforms’ such as hiking energy prices and removing interest rate caps.
The IMF completed reviewing the performance of its $1.49 billion forex insurance programme with Kenya a week ago ahead of expiry in September, piling pressure on Treasury to fast-track its prescription of bitter pills to bolster revenue generation. The review was expected to see Kenya allowed or denied further access to the standby facility. The facility, which allows Treasury CS Henry Rotich to access the funds in case the shilling is under pressure, is tied to the pledge by Kenya to cut back on the fiscal deficit through a raft of measures, including public spending cuts. But in a statement issued on August 3 upon conclusion of its two-week review mission in Nairobi, the IMF did not mention the new status of the facility, leading to speculation Treasury must do more to qualify. The team met Treasury and other State officials.The Bretton Woods institution revealed this year that the credit had been suspended mid-last year before the March 14 expiry date because of failure to meet the agreed fiscal deficit reduction targets. On Tuesday last week, Central Bank of Kenya Governor Patrick Njoroge said the Kenyan economy is well protected against capital outflows and does not need the IMF’s precautionary credit facility. Dr Njoroge said while the facility would be crucial to provide liquidity to the financial system if necessary, the country’s external position was strong at the moment, underpinned by strong remittances and exports. The IMF in mid-March approved Kenya’s request for a six-month extension of the facility, which is due to expire in March. Kenya, in return, promised to repeal the law that caps interest rates within the extended sixmonth window that expires in September. “The IMF is in town and they are reviewing our performance. We are confident in terms of our objectives… but at this point, we don’t need the money from that perspective. We have 5.9 months of import cover. We are pretty comfortable in that sense,” Dr Njoroge had said. Kenya’s economy grew by 4.9 per cent in 2017, recording the slowest margin in five years amid prolonged electoral process and adverse weather. But amid the assurance by the governor on the solid state of the economic fundamentals, President Uhuru Kenyatta’s administration has moved to implement the IMF’s raft of proposals which promise more pain on Kenyan households. This came amid warnings from consumer lobbies that Kenyans are struggling under the weight of high cost of living and saddling with more taxes will cause more pain, especially for ordinary consumers. $1.29 per litre of petrol Already, Nairobi motorists are expected to pay a record Sh130.15 per litre of petrol or about Sh17.9 more beginning next month when petroleum products start attracting 16 per cent value added tax. Treasury principal secretary Kamau Thugge confirmed on Thursday that petroleum products will start attracting the tax on September 1 in line with Kenya’s promise to the International Monetary Fund two years ago. At prevailing prices, diesel — used to power commercial vehicles such as buses and tractors — will cost $0.16 more to stand at $1.19 a litre after adding the tax. The new tax burden will also be felt among consumers of Kerosene, who are mostly low-income households that use it for lighting and powering cooking stoves. A litre of kerosene will cost $0.99, a $0.14 increase from the current price of $0.85 per litre. The increase in prices at the pump will not be limited to Nairobi but will be felt countrywide beginning September 1. Earlier estimates showed that the 16 per cent tax charge on petroleum products could earn the Treasury — which has continued to suffer perennial budget holes — additional $0.71 billion a year.