How the IMF left an indelible mark on this year’s budget

National Treasury and Planning CS Ukur Yattani at the Treasury building on their way to present the 2021/2022 budget to Parliament, Nairobi. June 10, 2021.[Jonah Onyango, Standard]

Kenyans are expected to start living with the harsh conditions imposed by the International Monetary Fund (IMF) in the next fiscal year starting in July.

In the budget statement presented last Thursday, Cabinet Secretary of the Treasury Ukur Yatani gave Kenyans an overview of the measures the government is preparing to implement in fiscal year 2021/22. They range from reforms on struggling parastatals that could see many officials laid off to college students paying more as the government seeks to make loss-making universities more financially sound.

The country has agreed to a number of conditions after the approval of a credit facility by the IMF that is expected to help Kenya tackle the vagaries of Covid-19.

The IMF approved in February a 261 billion shillings credit facility for Kenya under a three-year program.

Next, the IMF noted that the 38-month program under the Extended Financing Facility (EFF) and the Extended Credit Facility (ECF) also aims to help the country reduce its debt vulnerability.

The credit facility has far-reaching effects, some of which are evident in next year’s budget. Some of the effects include increasing taxes and cutting spending to reduce debt levels. There are fears that the restructuring of the ailing state-owned enterprise may be reminiscent of the structural adjustment program of the 1990s that left thousands of civil servants jobless.

In his budget statement, Yatani spelled out some of the measures that are expected to start taking effect in the coming months.

They include parastatal reforms, which could see some of the civil servants returning home as part of public entity reform (SOE) efforts, a process that will see some lighten and others merge.

“Given the prevailing business environment due to the negative impact of the Covid-19 pandemic, there is an urgent need to assess the financial situation and governance of the main companies and state institutions. It is in this regard that the government is exploring targeted reforms to strengthen these institutions, including public universities, ”Yatani said.

In an advisory to the government, the IMF cited Kenya Airways, Kenya Power and Kenya Railways Corporation among the entities that need to be reformed due, among other things, to poor financial performance.

The IMF said the combined profits of all public entities fell more than 30% to 62.5 billion shillings in the year through June of last year, adding that a “handful” of them were heavily lost.

“As the deteriorating income situation of the SOE sector reduces its contribution to the budget, additional fiscal pressures could arise from SOE debt on-lent or guaranteed by the government,” the IMF said. Indeed, Yatani said the government recently had to provide financial support to KQ, Kenya Power and Postal Corporation of Kenya to enable them to meet their obligations.

Three of the largest public universities – Nairobi, Kenyatta and Moi – are also set to be reshuffled, on recommendations from the IMF, which noted that they had suffered persistent losses for a long period of time.

Yatani also said there are plans to review the fees for university students, noting that the current fee of around 120,000 shillings per year introduced in 1991 is not sustainable.

The IMF also wants the government to review its procurement process, in order to eliminate loopholes that are exploited by corrupt individuals.

The SC noted that the government has already started a process to automate the entire procurement process.

He told parliament that aspects of manual purchasing currently in place would be phased out by the end of this year. In their place will be a purely e-procurement process. Yatani said electronic procurement would allow the government to manage efficient procurement processes with the impact of reduced operational costs, increased transparency and accountability through increased participation of bidders. .

“Last year, we started the process of automating government procurement through an end-to-end electronic procurement system,” Yatani said.

“So far, we have developed an implementation strategy that reorganizes all public procurement processes … in order to update this initiative, December 31, 2021 will be the final date for the deployment of the electronic system of public procurement and shutdown of the manual. procurement process.

The Treasury, however, has remained silent on some of the IMF’s proposals, which may emerge later in the year.

These include the IMF’s suggestion to increase the VAT on fuel to 16% from the current 8% in order to increase tax revenue.

Microeconomic imbalance

It was unlikely to appear in the 2021 finance bill given that fuel prices are at a historically high level.

The Parliamentary Budget Office noted that so far the Treasury has not been explicit in its plans to meet IMF conditions.

The PBO, which advises parliament on budgetary matters, noted that it expects reforms in areas such as revenue administration, containment of the public wage bill, restructuring of state-owned enterprises and rationalization. public investment projects.

“As is the case with IMF programs, the country must face fiscal and monetary measures in order to correct its macroeconomic imbalances,” the PBO said.

“Does the 2021/2022 budget meet IMF performance criteria? He poses, adding that “a review of the budget indicates that recurrent expenditure has been reduced by 20.86 billion shillings from the BPS level; denoting some effort to limit the growth of this expenditure component. However, the link between the proposed budget and “high impact” growth spending, especially in the context of the Big Four agenda as well as the post-covid-19 ERS is not very clear. ”

“The post-Covid-19 ERS has not been given much weight in the budget and is worded in a way that does not identify any KPIs or targets for the coming year.”

In the agreement with the IMF, Kenya also pledged to step up the fight against corruption, audit spending related to Covid-19 and strengthen the framework for combating money laundering and terrorist financing. .

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