The International Monetary Fund (IMF) wants Subs-Saharan countries in the risk of plunging into debt distress, including Kenya, to step up efficiency in revenue collection.
In a statement on Tuesday, September 26, the multinational lender advised countries in the region to consider eliminating tax exemptions as a way of reducing budget deficits.
According to the IMF, measures such as cutting down on operating cost and government expenditure are not enough to help in preventing debt reliance.
Instead, the IMF wants such countries to adopt measures aimed at enhancing efficiency of their tax collection system.
In the statement, the lender argued that cutting down on cost as proposed by some quarters is detrimental to growth of economies such as Kenya’s that require more investment in development projects.
“Sub-Saharan African countries tend to rely excessively on expenditure cuts to reduce their fiscal deficits,” the statement read in part.
“Mobilizing domestic revenue is less detrimental to growth in countries where initial tax levels are low, whereas the cost associated with reducing expenditures is particularly high given Africa’s large development needs,” IMF states.
As per IMF, governments of countries including Kenya should focus on not only short-term results but medium term which call for drastic measures.
Find ways to convince taxpayers
In addition, IMF wants countries struggling with debts to devise ways of convincing taxpayers on the merits of fiscal measures.
According to the advisory, the success of fiscal policies will depend on how governments in the regions manage to convince taxpayers on the long-term benefits.
Also Read: How Ruto Plans to Impose More Taxes on Kenyans if Finance Act Flops
“Communication campaigns that transparently and credibly outline the long-term benefits of the reform, its distributional consequences, and the costs of inaction are also critical,” IMF states.
“Public acceptance of reforms depends more generally on the ability of governments to convince the population that they will use public funds in an efficient, fair, and transparent manner.”
Backlash over IMF influence
In Kenya, President William Ruto’s government has been under pressure due to its renewed ties with the IMF.
A section of Kenyans has blamed the rise in the cost of goods and living on the advice given by the IMF advocating for scrapping of subsidies and increasing revenue collection.
Also Read: IMF Boss Says Kenya is on the Right Track Towards Economic Recovery
Ahead of the Budget reading in June, the state introduced a round of new fiscal measures contained in the controversial Finance Act 2023.
Further, Kenyan taxpayers could be staring at more taxes if the proposals lined up for parliament’s approval are anything to go by.
In the meantime, continuous reports from the Controller of Budget have shown that the state is using 83 percent of its revenue in debt repayment to reflect the looming debt crisis.
