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Dr David Matsanga is the Chairman of Pan African Forum.

Fifth Estate

IMF lends to restore sustainable Economic growth

I love Africa and I love the way Africans grasp some facts of reality and turn them into fiction. The petition by a section of Kenyans against IMF’s move to loan Kenya more money is unjustified, unwarranted, selfish and is driven by a few malcontents out to portray President Uhuru Kenyatta as a failure in providing necessary and essential services of development to his people.

It is a crusade that is well calculated to create a state of despondency, disaffection against the government – one which if not carefully handled has the potential to throw this nation of Kenya into anarchy. Such incitement shouldn’t be taken lightly for the architects would gladly celebrate if Kenya was to go the dogs, it will serve their interests and maybe ambitions of regime changers . I doubt they can keep up their masquerading for long.

But let me demystify this IMF and the loans they grant to countries. Don’t be surprised some fellows especially those yapping on social media platforms may not even have a clue how this loan comes about, why and how a country qualifies to get one. I won’t dwell on all but a few basic and important:

IMF lending serves three main purposes.

First, it can smooth adjustment to various shocks, helping a member country avoid disruptive economic adjustment or sovereign default, something that would be extremely costly, both for the country itself and possibly for other countries through economic and financial ripple effects (known as contagion).

Second, IMF programs can help unlock other financing, acting as a catalyst for other lenders. This is because the program can serve as a signal that the country has adopted sound policies, reinforcing policy credibility and increasing investors’ confidence.

Third, IMF lending can help prevent a crisis. The experience is clear: capital account crises typically inflict substantial costs on countries themselves and on other countries through contagion.

The best way to deal with capital account problems is to nip them in the bud before they develop into a full-blown crisis.

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Therefore, International Monetary Fund – IMF loans are meant to help member countries tackle payments problems, stabilize their economies, and restore sustainable economic growth. This crisis resolution role is at the core of IMF lending.

It provides broad support to low-income countries (LICs) through surveillance and capacity-building activities, as well as concessional financial support to help them achieve, maintain, or restore a stable and sustainable macroeconomic position consistent with strong and durable poverty reduction and growth.

This fund assists countries hit by crises by providing them financial support to create breathing room as they implement adjustment policies to restore economic stability and growth, and such is the case with Kenya at the moment following disruption of her economy due to ravages caused by the COVID-19 pandemic.

Article I of the IMF’s Articles of Agreement states that the purpose of lending by the IMF is “…to give confidence to members by making the general resources of the Fund temporarily available to them under adequate safeguards, thus providing them with opportunity to correct maladjustments in their balance of payments without resorting to measures destructive of national or international prosperity.”

In practice, the purpose of the IMF’s lending has changed dramatically since the organization was created. Over time, the IMF’s financial assistance has evolved from helping countries deal with short-term trade fluctuations to supporting adjustment and addressing a wide range of balance of payments problems resulting from terms of trade shocks, natural disasters, post-conflict situations, broad economic transition, poverty reduction and economic development, sovereign debt restructuring, and confidence-driven banking and currency crises.

As a matter of fact, the Kenyan government is justified to go for this loan. If not, why are you a member of IMF in the first place?

The enthusiasm for the petition against IMF loan should be directed at individuals who are fleeing this country. Suffice to say, why don’t you bother to petition those stealing from your coffers day in day out? Unless yours is a ‘decoy’ to divert government’s energy and attention from doing its work.

Dr. David Matsanga is the Chairman of the Pan African Forum (UK) Ltd.

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