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Finance The tightrope Kenya must walk as it balances between being popular and appeasing international donors

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There has been a flurry of meetings between National Treasury officials and some MPs to avert a crisis.

play President Uhuru Kenyatta. (pulselive.)

 

  • On Thursday, the Executive Board of the International Monetary Fund (IMF), is expected to decide whether or not to grant Kenya access to a precautionary credit facility of Sh99 billion ($989.8 million).
  • Should the government bow to public pressure and suspend the implementation the country will be locked out of IMF’s precautionary credit.

The Kenyan government is walking on a tightrope balancing between keeping its commitments to international donors and caving into the public interest.

On Thursday, the Executive Board of the International Monetary Fund (IMF), the highest decision-making organ of the Washington DC-based global lender, is expected to decide whether or not to grant Kenya access to a precautionary credit facility of Sh99 billion ($989.8 million).

In order to access the standby arrangement (SBA), Kenya has to implement some ‘unpopular’ measures among others, continue levying the 16 per cent value added tax (VAT) on petroleum.

play International Monetary Fund MD Christine Lagarde (left) with Finance Secretary Henry Rotich (centre) (Daily Nation)

 

Another major demand by the Washington-based institution is the removal of the interest rate cap, a promise that has been thwarted by MPs.

This punitive fuel tax has, however, already kicked up a storm around the country and Kenyans have been calling on the government to suspend the tax.

Should the government bow to public pressure and suspend the implementation the country will be locked out of IMF’s precautionary credit.

Also read: HOW DJIBOUTI LIKE ZAMBIA IS ABOUT TO LOOSE ITS PORT TO CHINA

play Petroleum Distributors ground their trucks to protest the new 16% tax on fuel. (Lolwe TV)

 

IMF will then be at liberty to recall their outstanding principals with could immediately trigger an economic meltdown in the country.

Without a deal, Kenya’s image as a favorite investment destination in the continent will be badly damaged and signals to international investors that the country is a 'high-risk' investor destination.

Furthermore, investors who have given the country loans running into Sh475 billion might also recall their cash.

play National Treasury and Ministry of Planning CS Henry Rotich with the National Treasury and Ministry of Planning PS Julius Muia during the 2015-2016 KIHBS Launch at the KICC on THursday 22nd March,2018. (the star)

Should the government stand firm and continue with the ‘unpopular 16 per cent value-added tax (VAT) on petroleum among other measures, the country stands to improve the state of its coffers and financial ratings.

Treasury expects to collect about Sh71 billion from the new fuel tax.

This will go a long way in reducing the country’s fiscal deficit - which occurs when a government's total expenditure exceeds the revenue that it generates - from 8.8 per cent of GDP in the 2016/17 financial year to 5.7 per cent of the GDP, as it had promised the IMF.

As a result, there has been a flurry of meetings between National Treasury officials and some MPs to avert a crisis.

President Uhuru Kenyatta, who quietly returned to the country on Sunday evening from China, is expected to meet Treasury Cabinet Secretary Henry Rotich and Speaker of the National Assembly Justin Muturi on Tuesday over the 16 per cent fuel tax.

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