Ex-IMF adviser: Kenya should improve safety nets for the poor

A former adviser to the International Monetary Fund (IMF) has called on Kenya and other developing countries to wean themselves off IMF programmes, arguing that the Bretton Woods institution’s prescriptions often harm rather than empower developing economies.

The criticism comes as Kenya prepares to negotiate a new IMF arrangement, following the sudden end of an existing one and a period of social unrest triggered by previous IMF-backed policies.

Li Daokui, a professor of Economics and the current Dean of the China Academy of Economic Thought and Practice at Tsinghua University in Beijing, argued that the IMF’s focus on deficit reduction and expenditure cuts, while seemingly straightforward, can create social instability in countries with large populations dependent on government spending.

“Shrinking. Cut your deficits. Cut your expenditure. That doesn’t work because in countries like Kenya, there are many poor people living off government expenditures,” Professor Li said in a public lecture in Beijing.

International investment

He advocated for a strategy that prioritises social safety nets while ="https://www.standardmedia.co.ke/health/health-science/article/2001495526/state-increases-inua-jamii-funds-to-sh386-billion">simultaneously expanding the economy< through targeted international investment. “What Kenya and other IMF patients should do is to first make sure poor people get enough support for subsistence. Don’t touch that. And then try to increase the size of your economy,” he said.

Li suggested that Kenya should seek partnerships with countries such as China to attract investment and stimulate growth, rather than relying solely on IMF funding and prescriptions.

“A tangible move is for top policymakers and thinkers to come to China to understand how we did it,” said Li, whose book ‘China’s World View: Demystifying China To Prevent Global Conflict’ captures the history of China and its reemergence as the second largest economy in the world.

His comments come as Kenya navigates a delicate period in its relationship with the IMF.

The Kenyan government recently ended its existing IMF programme, amid concerns over missed fiscal discipline targets and rising living costs. President William Ruto’s administration is now seeking a new arrangement, but faces the challenge of balancing economic reforms with social stability.

Last June, IMF-backed fiscal measures, including a controversial Finance Bill, sparked ="https://www.standardmedia.co.ke/national/article/2001510224/government-rolls-out-mpesa-payments-for-inua-jamii-beneficiaries">deadly youth-led protests<, forcing the IMF to acknowledge the need to rethink its approach.

The IMF acknowledged that better communication from Kenyan policymakers would have mitigated the unrest.

An IMF paper, ‘Understanding the Social Acceptability of Structural Reforms’ following the Gen Z led protests highlighted the need for effective communication and stakeholder engagement, particularly in light of the Kenyan protests.

“Effective strategies must be backed by strong institutional frameworks that foster trust and a two-way dialogue among stakeholders and the public,” the paper said.   

Kenya’s experience has become a cautionary tale for the IMF, prompting a global reassessment of its conditionalities. The IMF’s recent research indicates that public perception, often influenced by miscommunication and misinformation, plays a significant role in the success or failure of structural reforms.

Li’s critique adds to the growing debate about the institution’s role in developing economies. He argued that the IMF’s prescriptions are often “too draconian” and that the institution has “not been doing very well” in providing effective solutions.

He also pointed to the IMF’s failure to predict the 2008 global ="https://www.standardmedia.co.ke/main-staging/article/2001502930/mutua-says-the-elderly-to-receive-stipend-through-mobile-money?utm_cmp_rs=amp-next-page">financial crisis< as evidence of its shortcomings. As Kenya seeks a new path forward, the reorganised Ruto government faces the challenge of maintaining fiscal discipline while addressing the needs of increasingly demanding and restless Kenyans.

The debate over the IMF’s role in the country’s economic development is likely to continue.