Impact of IMF and World Bank on President Ruto’s Sh3.68trn Budget: A Comprehensive Analysis

**Economy IMF, World Bank Influence on President Ruto’s Sh3.68trn Budget**
*Treasury Cabinet Secretary Njuguna Ndung’u reads 2023/2024 budget statement*
Treasury Cabinet Secretary Njuguna Ndung’u delivered his first Budget speech, revealing the influence of the International Monetary Fund (IMF) and the World Bank on President William Ruto’s budget plans. The budget statement, totaling 129 pages, outlined the government’s intention to implement the stringent conditions set by the IMF and the World Bank. Key proposals included an increase in value-added tax (VAT) on fuel to 16 percent and the removal of various items from the zero-rating list, resulting in the imposition of a 16 percent sales tax on these items. These measures align with the preferences of the World Bank.

**President Ruto Commits to IMF’s Conditions**
*Despite popular opposition, Ruto refuses to back down on proposed VAT increase*
President William Ruto, fulfilling his promise to implement the IMF’s conditions after assuming power, stands firm on his proposal to increase VAT on petroleum products. Despite its widespread unpopularity, Ruto aims to reduce the budget deficit to 4.4 percent of gross domestic product (GDP), as agreed with the IMF.

**Financial Support from Development Partners**
*Acknowledgment of support from multilateral and bilateral institutions*
During his Budget speech, Ndung’u expressed gratitude to Kenya’s development partners for their financial support and contribution to the country’s socio-economic transformation. He mentioned specific institutions such as the World Bank, the IMF, the European Union, the African Development Bank, and various bilateral donors, institutions, and governments.

**Revenue Generation and Debt Reduction**
*Additional revenue expected from VAT on fuel and expenditure reduction through restructuring*
The proposed eight percent VAT on fuel is expected to generate an additional Sh50 billion in revenue, helping the government narrow the budget deficit and meet the IMF’s target of 4.4 percent of GDP. Kenya Power and Kenya Airways are also undergoing restructuring to reduce the fiscal risk they pose to taxpayers. The government aims to rationalize the composition of their staff and achieve a ratio of 70:30 for technical and support staff, respectively. Additionally, the government plans to approve hiring budgets for state corporations only after obtaining necessary approvals from the State Corporations Advisory Committee, the Public Service Commission (PSC), and the Salary and Remuneration Commission (SRC).

**Kenya’s Revenue Target and Budget**
*KRA has been given a target of Sh2.57 trillion for the upcoming fiscal year*
The Finance Bill, 2023 aims to generate over Sh211 billion in additional revenues, driving the target for Kenya Revenue Authority (KRA) to Sh2.57 trillion for the next financial year. This represents an increase from Sh2.19 trillion in the current fiscal year.

**Rewards from IMF and World Bank for Fiscal Responsibility**
*Kenya set to receive an additional Sh162.5 billion from the IMF*
Kenya’s adherence to the IMF and World Bank’s fiscal policies has been rewarded by both institutions. As a result, Kenya will receive an additional Sh162.5 billion under a 38-month program with the IMF. The funds are an acknowledgement of Kenya’s commitment to implementing stricter tax policies agreed upon with the financial institution.

**IMF’s Recommendations on VAT**
*Kenya urged to increase VAT on fuel when crude oil prices fall*
In 2021, the IMF suggested that Kenya double the VAT on fuel from eight percent, but emphasized the importance of a delayed implementation to mitigate public anger and pressure caused by rising petroleum costs. The IMF encouraged Kenya to align fuel VAT with the standard rate during periods of lower fuel prices.

**Restructuring State Corporations**
*Plans to improve financial sustainability and reduce fiscal risk*
To enhance financial sustainability and reduce fiscal risk, Kenya Power and Kenya Airways are undergoing restructuring. The government aims to address their respective balance sheets and liquidity gaps. In the case of Kenya Power, a Sh19.4 billion debt owed to the Rural Electrification Schemes (RES) operations and maintenance cost will be settled. Additionally, both state corporations will implement turnaround strategies to improve their profitability.

**E-Procurement System and Debt Threshold Change**
*Implementation of an e-procurement system and debt threshold adjustment*
Kenya has also agreed with the IMF to roll out an e-procurement system and incorporate it into the Integrated Financial Management Information System (IFMIS) to automate the application of the Procurement Act and regulations. Furthermore, the Treasury intends to change Kenya’s debt threshold from a ceiling to an anchor of GDP, with the necessary bill having been submitted to the National Assembly.

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