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September 19, 2018

IMF Must Take a Hike And Let Us Fix Our Economy

The International Monetary Fund, a multilateral lender, has been told by the government of Greece that it should not expect a scheduled loan repayment at the end of this month.

The Greek government says it is in an economic crisis and has no money.

It has further told other bodies it owes money that it is up to them to come up with friendly terms for Greece to repay them if they do not want it to default and potentially leave the single-currency Eurozone.

The IMF, armed with a $750 billion chest that it purports to use to financially rescue distressed economies has reacted angrily and said Greece will not get an extension on the end-month deadline and must pay.

Big European economies, led by Germany have told Greece to take up its responsibilities and that any money it gets must be used to help its economy not to fund lifestyles.

Observers say the likely default serves the IMF right for meddling in matters that did not concern it as it should have left the Eurozone to handle the matter.

As Kenya appoints its newest Central Bank governor from the IMF, this crisis should serve to show just how dangerous this institution’s policies are.

The script is well known as the IMF has hardly innovated any new prescriptions since its structural adjustment programmes crippled many developing countries.

First, it provides some money, disbursed in phases.

It then issues a series of conditions that the recipient country needs to put in place to keep getting funds.

These include cutting the budget deficit by eliminating what it calls waste. Waste many times refers to the size of the civil service workforce. Retrenchment of workers is one of the first things it expects governments to do so as to be lean and efficient.

It will also advocate for a slowdown in uptake of any more debt. Since development budgets are usually financed by debt, this necessarily means government must shelve infrastructure projects.

Social spending such as for clinics, education etc is also supposed to be reduced.

Unnecessary importation of vehicles and other goods will also be frowned upon as it imbalances payments – imports vs exports.

So, to discourage this, the IMF will advise for tighter monetary policy meaning the rates at which banks lend money will be hiked to turn people away from casual borrowing.

All this does not add investment into the economy and indeed, it is likely to stifle economic growth.

But when the payments to the IMF mature, it will not want to know this – it will demand payment as it is doing to Greece despite the fact that its recommended austerity measures have plunged the country into economic crisis.

At a time when the National Treasury Cabinet secretary Henry Rotich, Principal secretary Kamau Thugge, Economic secretary Geoffrey Mwau and now the CBK governor Patrick Njoroge are all previous IMF staff, we should be very concerned as to what economic policies we are likely to adopt in the near term.

Since the sShilling went into free fall in 2011, we have been taking IMF money and policies.

Every so often, a country mission of a few IMF economists will visit the country and meet with all the key government and industry chiefs apparently to gauge how faithfully the country has been following its recommendations.

It will then issue a statement where it inevitably says things are on course but could be better.

The CBK governor Patrick Njoroge in his vetting before parliamentarians, stuck to script.

He expressed concern over the mounting public debt. What he recommends will be another matter.

The Monetary Policy Committee of the central bank has already signalled for interest rates to go up by raising its key lending rate by 150 basis points.

Njoroge is likely to step in stride.

But just like in 2011, Treasury rather than CBK should take up this matter. It must be bold.

Already out of a Sh2.2 trillion budget, Sh400 billion is for repayment of debt alone.

In the same budget, CS Henry Rotich has proposed tax increases on items like beer, cigarettes, fuel and so on in a bid to raise more money to meet these obligations.

More thought must be put in taxation policies for raising revenue for government.

For instance, instead of increasing the tax on fuel, Treasury should do what KRA should have implemented a long time ago, slash duty on importation of vehicles and thus multiply the number of road users who pay fuel levies.

Slashed tax obligations on income would likely see workers settle for lower salaries and thus lower the cost of production for an economy looking to grow throw competitive exports into the region.

Using the same script and running to the IMF for emergency funds which come with strict conditions should be abandoned.

Let the IMF take its money and go. Let us see more original and Kenya specific economic growth strategies.

Mbugua is a communications consultant and comments on topical issues.

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