Kenya/International Monetary Fund (IMF): Align Economic Reform with Rights

 

The Kenyan government and International Monetary Fund should work together to ensure that the IMF program and its implementation align with human rights, Human Rights Watch said today. The focus should be on progressive revenue generation and accountability over public funds.

Following the recent nationwide protests, President William Ruto declined to sign Finance Bill 2024, which included regressive tax measures that risked undermining rights. Any alternative measures should relieve economic pressures by addressing the root causes of protesters’ anger.

“The widespread outrage sparked by proposed taxes on goods like sanitary pads and cooking oil in a country where corporate tax evasion is endemic should be a wake-up call to the Kenyan government and the IMF that they cannot sacrifice rights in the name of economic recovery,” said Sarah Saadoun, senior researcher on poverty and inequality at Human Rights Watch. “Economic sustainability can only be achieved with a new social contract that raises revenues fairly, manages them responsibly, and funds services and programs that allow everyone to realize their rights.”

Finance Bill 2024, in the context of an IMF program with Kenya, was expected to raise US$2.7 billion in additional revenues in the upcoming fiscal year, in part to meet IMF targets. The bill included several new tax provisions, such as removing exemptions from certain food items and a mobile money transfer tax, that would increase the cost of essential goods and services and fall heaviest on Kenyans with lower and middle incomes, as well as already marginalized groups such as women.

The IMF program was approved in 2021 to support Kenya’s response to the Covid-19 pandemic and global inflation, as well as devastating cycles of droughts and floods made worse by climate change. An increase in interest rates has also forced the government to spend upward of half its tax revenues to service debt.

The Kenyan government has other options to raise revenue progressively and enhance trust in the government, Human Rights Watch said. Kenya’s tax-to-GDP ratio is around 15 percent, which is the minimum threshold according to the World Bank for a viable state and economic stability. 

The government could introduce tax reforms to better enforce existing tax rules, tackle mismanagement and corruption, and increase taxation on the wealthiest. Taxes on industries or products that harm the environment should also be designed so that they do not undermine rights, such as by using the revenues raised to compensate for their effects on low and middle-income people. 

Under human rights law, governments, and the international financial institutions that support them, are required to respond to economic crises in ways that do everything possible to protect and advance rights. They are expected to conduct and publish human rights impact assessments to ensure that proposed reforms, including to fiscal policy and public spending, best fulfill people’s economic, social, and cultural rights, paying special attention to risks to women and economically marginalized groups. These assessments should be transparent, include public participation, and shape the measures that are ultimately enacted.

The IMF has committed $4.4 billion to Kenya, and the World Bank anticipates $12 billion in support from 2024 to 2026. Yet, the program negotiated with the IMF requires steep spending cuts and increased revenues. A June IMF statement praised the Finance Bill and the upcoming fiscal year’s proposed budget as in line with the required “sizable and upfront fiscal consolidation,” referring to reducing public expenditure or increasing revenues. 

Human Rights Watch analysis of such measures shows that they frequently harm human rights. Research has also shown that these measures tend to worsen inequality, and “a large upfront fiscal consolidation can be particularly damaging,” according to the Independent Evaluation Office, an independent IMF entity. 

The IMF program in Kenya has already introduced sweeping reforms, some of which exacerbated the cost-of-living crisis. These include doubling the value added tax on fuel without any compensatory measures and other efforts to raise revenues that contributed to financial hardship. Yet, the public has seen little benefit from additional revenues and the government has continued to fall short of IMF targets.

The IMF statement advised strengthening the so-called “social safety net,” referring to social security programs that provide income support, while also expressing support for the approved budget. According to an analysis submitted to the Budget and Appropriations Committee of the National Assembly by Bajeti Hub, a nongovernmental group formerly called International Budget Partnership Kenya that advocates for budget transparency, the budget presented to parliament in April included significant cuts in health, education, social protection, and water and sanitation. In 2022/23, the combined spending on these categories came to only around 6 percent of Kenya’s GDP, or 23 percent of government expenditures. This amount is far below international benchmarks and reflects a continued decrease in social spending in Kenya since 2019.

For health care, the World Health Organization recommends spending a minimum of 5 percent of GDP, and Kenya has agreed to at least 15 precent of government expenditures. Global benchmarks on education recommend spending at least 4 to 6 percent of GDP or 15 to 20 percent of national budgets to meet human rights obligations.

Anger at the bill provoked unprecedented protests across the country and online, which quickly evolved to express broader outrage at the high cost of living, corruption, poor governance, wasteful government spending, and the abysmal state of public services. Protesters said they were particularly incensed that the government would tax sanitary pads, cooking oil, and other basic goods rather than address rampant tax evasion and corruption. 

The government responded by brutally cracking down on protesters, killing at least 39 people, according to the Police Reforms Working Group – Kenya. Authorities have continued to target protesters and perceived protest organizers with arbitrary arrests and detentions and, in at least 32 cases, abductions and enforced disappearances. Victims of abductionsreport being tortured by police or suspected state agents, and others have been found dead. 

President Ruto sent the bill back to parliament, saying he would instead seek $1.4 billion in expenditure cuts and $1.3 billion in new borrowing. This could be a positive step against regressive tax measures, but protesters have described this as largely inadequate to address the root causes of the country’s problems or to heed public demands for reforms. 

In addition, it may create fresh risks to rights, Human Rights Watch said. The president has said he would achieve the cuts by, for example, decreasing travel expenses and eliminating budget lines for the president and deputy president’s spouses, but this is unlikely to be sufficient. To reach $1.4 billion in cuts, the government could further decrease—or, at a minimum, decline to increase—chronically low social spending. A revised budget was published on July 15, but it has yet to be analyzed. At the same time, without the Finance Bill, the IMF’s Executive Board may not approve the release of additional funds.

The IMF should revisit its targets to ensure that it is not impeding the Kenyan government from meeting its human rights obligations and ensure that any policies enacted to achieve program targets do not exacerbate poverty and inequality or undermine rights. To build trust, the IMF and Kenyan government should work together to conduct and publish human rights impact assessments of both the budget and finance bills and amend them to best fulfill their rights obligations, Human Rights Watch said. 

The United Nations Committee on Economic, Social and Cultural Rights noted in its 2016 periodic review of Kenya that “there is a large amount of illicit financial flows and tax avoidance” and “cases of corruption, particularly those involving high-level officials, are not thoroughly investigated.” 

Further, Tax Justice Network, a nongovernmental group, ranks Kenya as highly complicit in helping multinational corporations underpay corporate income tax and says that Kenya loses $190 million annually in global tax abuse, largely committed by multinational corporations. This figure is equivalent to 9.5 percent of Kenya’s budget for health and 4 percent of education. Corporations had a tax compliance rate of 70 percent in 2023, according to data from the Kenya Revenue Authority. 

Human rights law also obligates other states and public institutions to set a global environment and provide support to Kenya to best fulfill everyone’s economic, social, and cultural rights in the country. This applies, for instance, to global tax rules and the treatment of debt.

The UN High Commissioner for Human Rights has called for a “human rights economy.” This concept is rooted in the shared vision of reforming domestic economies and the international financial architecture to enable everyone to realize their economic, social, and cultural rights, as well as the rights to development and to a healthy and sustainable environment.

“Kenyans are expressing the anger of billions of people across the world who are being squeezed dry by an economic system that leaves even well-intentioned governments with little margin to meet their human rights obligations,” Saadoun said. “Only by aligning economic policies with human rights on every level, domestic and international, can we address the root of the problem.”

Distributed by APO Group on behalf of Human Rights Watch (HRW).