The Central Organization of Trade Unions (COTU) has sounded a warning to the newly-appointed National Treasury Cabinet Secretary, John Mbadi, urging him to exercise caution in his dealings with the International Monetary Fund (IMF). COTU Secretary General Francis Atwoli specifically cautioned against adopting a “rigid approach” in implementing IMF economic and financial adjustments without tailoring them to the unique socio-economic context of Kenya. He emphasized that such an inflexible stance could lead to widespread unrest and dissatisfaction among the Kenyan populace.

The IMF has played a significant role in shaping Kenya’s economic policies over the years, providing crucial financial support during times of economic hardship. However, the conditions tied to these funds have often sparked debate, particularly regarding their impact on the average Kenyan. In his statement, Atwoli highlighted the importance of balancing IMF recommendations with local needs and conditions, drawing on historical lessons from previous administrations.

IMF’s Influence on Kenya’s Economic Policies

The IMF’s involvement in Kenya’s economic planning dates back several decades, often providing the country with much-needed financial assistance during periods of economic downturn. For instance, in the 1990s, under the structural adjustment programs (SAPs), the IMF imposed strict conditions on Kenya, including the liberalization of trade, privatization of state-owned enterprises, and stringent fiscal discipline. These measures, while aimed at stabilizing the economy, had profound impacts on the social fabric of the country. The resulting cuts in public spending led to a deterioration in essential services such as healthcare and education, disproportionately affecting the poor and vulnerable segments of society.

More recently, Kenya has again turned to the IMF for support, particularly in the wake of the COVID-19 pandemic, which severely disrupted the global economy. The IMF approved a $2.34 billion Extended Credit Facility (ECF) and Extended Fund Facility (EFF) for Kenya in April 2021. The funds were intended to support the country’s COVID-19 response and help stabilize the economy. However, the conditions attached to these facilities, such as fiscal consolidation and the reduction of public debt, have been a source of concern among various stakeholders, including trade unions like COTU.

Atwoli’s Concerns and Historical Context

Francis Atwoli’s cautionary statement draws parallels with the administration of former President Mwai Kibaki, who governed Kenya from 2002 to 2013. Kibaki’s administration is often credited with steering Kenya through a period of significant economic growth, marked by prudent fiscal management and strategic investment in infrastructure and social services. However, unlike his predecessors, Kibaki was known for taking a more balanced approach to IMF recommendations. His administration selectively implemented IMF policies, ensuring that they were aligned with the broader goals of economic growth and social welfare.

Atwoli urged Mbadi to adopt a similar approach, warning that strict adherence to IMF conditions could lead to increased taxation and austerity measures that would disproportionately affect the poor. He cited examples from other countries where IMF-imposed austerity measures have led to widespread social unrest. In Greece, for instance, the IMF’s involvement during the Eurozone crisis in the early 2010s led to severe austerity measures that triggered mass protests and strikes. Similarly, in Argentina, IMF-imposed austerity during the 1990s and early 2000s contributed to one of the worst economic crises in the country’s history, resulting in widespread poverty and unemployment.

Potential Impact of IMF Conditions on Kenya

The concerns raised by Atwoli are not without merit, especially considering Kenya’s current economic situation. The country is grappling with a high public debt burden, which has been exacerbated by the COVID-19 pandemic. As of 2024, Kenya’s public debt stands at approximately 70% of its Gross Domestic Product (GDP), up from 40% a decade ago. The IMF has consistently emphasized the need for fiscal consolidation to reduce the debt-to-GDP ratio, which may involve measures such as increasing taxes, cutting public spending, and reducing subsidies.

However, these measures could have significant social implications, particularly for low-income households. An increase in taxes, for example, could lead to higher prices for basic goods and services, further straining the budgets of ordinary Kenyans. Additionally, cuts in public spending could affect critical sectors such as healthcare, education, and social protection, which are already under pressure.

Atwoli’s caution also extends to the potential impact on Kenya’s labor market. The IMF has previously advocated for labor market reforms in Kenya, including measures to increase labor flexibility and reduce wage pressures. While these reforms are intended to boost economic efficiency and job creation, they could also lead to job losses, reduced job security, and lower wages, particularly for workers in the informal sector who are already vulnerable.

COTU’s Role in Advocating for Workers’ Rights

COTU, as the leading trade union in Kenya, has a critical role in advocating for the rights and welfare of workers. The organization has been vocal in its opposition to policies that it perceives as harmful to workers, including those proposed by the IMF. Atwoli’s statement is a reaffirmation of COTU’s commitment to safeguarding the interests of Kenyan workers, particularly in the face of economic policies that could have adverse effects on their livelihoods.

COTU has previously engaged in dialogue with the government and other stakeholders to advocate for more worker-friendly policies. In the context of IMF conditions, the union has called for a more consultative approach, where the views and concerns of workers are taken into account in the formulation and implementation of economic policies. This includes advocating for policies that promote job creation, fair wages, and social protection, while also ensuring that the country’s economic stability is maintained.

Conclusion: A Call for a Balanced Approach

As John Mbadi takes on his new role as the National Treasury Cabinet Secretary, he faces the challenging task of navigating Kenya’s economic recovery while managing the country’s growing public debt. The IMF will undoubtedly continue to play a significant role in shaping Kenya’s economic policies, but as Francis Atwoli has emphasized, it is crucial that these policies are tailored to the unique needs and conditions of the country.

A balanced approach, similar to that adopted by the Kibaki administration, could help ensure that the benefits of IMF support are maximized while minimizing the potential negative impacts on ordinary Kenyans. This approach would involve carefully assessing the social and economic implications of IMF conditions and making necessary adjustments to protect the welfare of the populace.

Ultimately, the goal should be to achieve sustainable economic growth that benefits all Kenyans, not just a select few. This requires a delicate balance between fiscal discipline and social welfare, a balance that will be crucial in determining the success of Kenya’s economic recovery in the years to come.

photo source: Google

By: Montel Kamau

Serrari Financial Analyst

15th August, 2024