Ruto budget has imprints of IMF, World Bank

The 129-page Budget address aimed to explain the motivation behind the far-reaching revenue-raising plan, which will see the State embrace several policies from the two Washington-based organizations that Kenya pledged to implement, including boosting the value-added tax on petroleum to 16%.
Several items were also removed from the zero-rating list, which means they will now be subject to the 16% sales tax, a step long supported by the World Bank.
Dr. Ruto, whose first objective after taking office was to phase out gasoline subsidies in accordance with IMF requirements, has refused to back down from the proposal to raise VAT on petroleum products, despite broad support.
“Mr Speaker, we are truly grateful as a nation to our development partners who have over the years provided financial resources to support the implementation of government programmes, policy, and structural reforms,” Prof Ndung’u said in his speech, which put the country’s total spending at Ksh3.68 trillion for the fiscal year ending June 2024.
“In particular, I would like to recognize the multilateral institutions, specifically the World Bank, the International Monetary Fund, the European Union, the African Development Bank, and the many bilateral donors, institutions, and governments that have accompanied Kenya on its journey of socioeconomic transformation.”
The government aims to receive an additional Ksh50 billion from the eight percent VAT on fuel, which will assist them reduce the budget deficit to 4.4% of GDP, as agreed to the IMF.
The program, which aims to help the country decrease its debt risk, has also enlisted Kenya Power and national carrier Kenya Airways, both of which are scheduled to undergo restructuring.
State firms with large payrolls have also been on the IMF’s radar. Prof Ndung’u stated that the government would soon be rationalizing the personnel composition by reducing the number of support staff while increasing those in technical positions.
The government intends to maintain a technical-to-support worker ratio of 70:30.
“In addition, the National Treasury shall henceforth only approve budgets for hiring staff for State corporations that have received approvals from the State Corporations Advisory Committee, the Public Service Commission, and the Salary and Remuneration Commission,” he stated.
Kenya Power and Kenya Airways are being restructured in order to reduce the fiscal risk that these State enterprises provide to taxpayers who are obliged to bail them out.
The Finance Bill, 2023, through which the State expects to earn approximately Ksh211 billion in new revenues, has cleared the second reading stage in the National Assembly, despite severe disagreements between the majority and minority parties.
The Kenya Revenue Authority has been assigned a total target of Ksh2.57 trillion for the fiscal year beginning July, up from Ksh2.19 trillion in the current fiscal year.
Dr. Ruto’s government appears to have been rewarded by both the IMF and the World Bank for adhering to the two global lenders’ liberal policy of maintaining a smaller fiscal deficit through spending cuts and revenue increases.
Kenya is expected to receive an additional Ksh162.5 billion under the IMF’s 38-month program after Dr. Ruto’s administration demonstrated a clear commitment to implementing the tough tax measures agreed upon with the Washington-based agency.
When crude oil prices fall in 2021, the IMF believes Kenya should raise the VAT on fuel from the present 8%, signaling that the international financier is open to delaying implementation to avoid escalating public outrage and pressure over the country’s soaring petroleum expenses.
“If needed to meet fiscal objectives, capitalise on lower fuel prices by aligning fuel VAT to the standard rate,” the IMF advised the government last April.
The IMF stated in its December report that one of the conditions, known as structural benchmarks, that had not been met was a draft action plan to restore Kenya Power’s medium-term profitability by the end of July last year.
“To improve KPLC’s financial sustainability even further, the government will restructure its balance sheet, focusing primarily on the massive loan balances, payables, and receivables.” This, in turn, will alleviate KPLC’s current massive cash gap,” Prof Ndung’u explained.
The government would settle a Ksh19.4 billion debt owed to the Rural Electrification Scheme’s operations and maintenance costs as part of the restructuring.
The government will also develop and implement a turnaround strategy that includes reducing system losses from 22.4% to 14.4% by end-June 2025, as well as establishing a new governance structure at the utility firm to provide fair representation that reflects its shareholding structure.
The government will also devise a turnaround strategy to assist Kenya Airways (KQ) in becoming profitable.
Kenya also agreed with the IMF to implement an e-procurement system that will be integrated into the Integrated Financial Management Information System (IFMIS) to automate the implementation of the Procurement Act and regulations.
The Treasury also assured the IMF that the country’s debt threshold would be changed from a ceiling to an anchor of GDP. The Bill has already been filed to the National Assembly by the Treasury.