The International Monetary Fund (IMF) has advised President William Ruto's administration to stay firm over the new tax measures amid increased protests by the opposition.
In its Risk Assessment Matrix detailed in the Country Report for July 2023, IMF predicted the emergence of protests over the high cost of living which was one of the agendas for the demonstration led by Former Prime Minister Raila Odinga.
The risk was ranked as medium - meaning the multilateral lender does not see the ongoing demonstrations as a threat to the President's plans.
"Unrest could reemerge in connection with protests against the higher cost of living, the need to raise more taxes and electoral process supported by the political opposition," IMF analysed.
The IMF has advised the country to "Remain committed to reforms under the program" despite the mounting pressure from different groups including the Catholic Church for the government to repeal the Finance Act.
Some of the measures contained in the Finance Act 2023 include the introduction of the 1.5 per cent Housing Fund and the increment of VAT on fuel products from 8 per cent to 16 per cent, which could push the prices of most basic commodities up.
Already, the Energy and Petroleum Regulatory Authority (EPRA) has increased the price of Super Petrol and Diesel by Ksh13 despite a court order suspending the implementation.
Currently, a litre of Super Petrol retails at Ksh195.53 while Diesel goes for Ksh179.67.
The IMF maintains in its review that the price of basic commodities could shoot up also owing to other global factors.
"Keep domestic fuel prices aligned with global fuel prices while compressing expenditure to contain fiscal pressures. If the shock is persistent, tighten monetary policy to ensure inflationary expectations remain well-anchored," IMF advised.
The US-based lender has advised Ruto to stick to the reforms despite a mirage of challenges predicted.
"Risks from poor implementation capacity from the new government initiatives would lead to higher budget deficits, which would increase debt ratios, crowd out private investment, and ultimately weaken growth," the financial institution stated.
Ruto recently took aim at lenders from the West, pushing for a Pan-African agenda that would look for solutions from within the continent.
However, the IMF directive reveals that some of the pronouncements are political rhetoric.
