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IMF & World Bank: Who owns them, sources of funding & influence in Kenya

IMF & World Bank: Who owns them, sources of funding & influence in Kenya | Pulselive Kenya

Denis Mwangi

The International Monetary Fund (IMF) and the World Bank are among the world's most influential international financing institutions.

These loans come with stringent conditions and obligations that the Kenyan government has had to fulfil or commit to delivering.

Let's look at look at both institutions, their history, ownership and funding.

The International Monetary Fund (IMF) and the World Bank were created in July 1944 at an international conference in Bretton Woods, New Hampshire, United States. This is why they are often termed as the ‘Bretton Woods’ institutions.

The conference aimed to establish a framework for economic cooperation aimed at creating a more stable global economy.

President William Ruto and Kristalina Georgieva, Managing Director of the International Monetary Fund (IMF), at the "New Global Financing Compact" summit in Paris on 22 June 2023.

In the aftermath of World War II, a new world order emerged, prompting the birth of the IMF and World Bank. The IMF aimed at short-term financial stability, while the World Bank sought long-term development projects.

<h3>Difference between IMF and World Bank mandate</h3>

While the primary focus of the Bretton Woods conference was the creation of the IMF, the World Bank was also established to provide financial assistance for the reconstruction of war-torn countries.

The IMF promotes global macroeconomic and financial stability and provides policy advice and short- and medium-term loans to help countries that are experiencing balance of payments difficulties.

Balance of payments difficulties occur when a country faces challenges in maintaining a balance between its economic transactions with the rest of the world.

The World Bank, on the other hand, focuses on long-term investment projects, institution-building, and social, environmental, and poverty issues.

Today, the IMF has 190 member countries with approximately 2,700 staff from 150 countries.

The World Bank has 189 member countries with staff from more than 170 countries and offices in over 100 countries.

<h3>IMF &amp; World Bank Ownership and Funding</h3>

The International Monetary Fund (IMF) and the World Bank are owned by their member countries. They are funded by their member countries.

The IMF's funds come from three sources:

<ol><li>Member quotas</li><li>Multilateral agreements</li><li>Bilateral borrowing agreements</li></ol>

Member quotas are the primary source of IMF funding, and each member country's quota reflects its size and position in the world economy.

Quotas are also used to determine voting power on key decisions. The more a country like the United States contributes, the more voting power it has.

READ: <a href="https://www.pulselive.co.ke/business/domestic/how-kenya-plans-to-prioritise-new-dollar6847-million-sh110-billion-imf-loan/p3g4x90">How Kenya plans to prioritise new $684.7 million (Sh110 billion) IMF loan</a>

In December 2023, the IMF board approved an increase in quotas by 50 per cent. The next step is for member countries to consent to their respective quota increases.

As of mid-December 2023, IMF had total resources amounting to approximately $1.308 trillion, translating into a lending capacity of around $925 billion.

The World Bank’s funding comes from:

<ol><li>Funds raised in the financial markets</li><li>Earnings on its investments</li><li>Fees paid in by member countries</li><li>Contributions made by members (particularly the wealthier ones)</li><li>Borrowing countries when they pay back their loans.</li></ol>

Both the IMF and World Bank have boards of governors and executive directors. The board of governors is the highest decision-making organ, while executive directors are responsible for the day to day running of the organisation.

As of January 2024, the&nbsp;<a data-link-role-code="open_new_tab" href="https://www.pulselive.co.ke/apo/statement-by-imf-managing-director-kristalina-georgieva-at-the-conclusion-of-a/qf68h30">IMF Managing Director is Kristalina Georgieva</a>.

The IMF's operations involve promoting global macroeconomic and financial stability, providing policy advice, and offering financial assistance to member countries facing balance of payments problems. It also focuses on surveillance of the international monetary system and capacity development support to help countries build and maintain economic stability.

As on January 2024, the <a data-link-role-code="open_new_tab" href="https://www.pulselive.co.ke/business/international/world-bank-to-provide-electricity-for-100-million-africans-by-2030/l5s35j1">President of the World Bank is Ajay Banga</a>.

The World Bank's operations are centred on long-term investment projects, institution-building, and addressing social, environmental, and poverty issues.

It provides financial and technical assistance to developing countries for development programs (such as building schools, providing water and electricity, and fighting disease) and policy advice.

The World Bank is made up of five institutions, collectively known as the World Bank Group. These institutions work together to provide financial and technical assistance to developing countries.

President William Ruto with World Bank Kenya Director Keith Hansen at State House, Nairobi

International Bank for Reconstruction and Development (IBRD)

Provides loans and financial assistance to middle-income and creditworthy low-income countries. Focuses on development projects and programs to reduce poverty and promote economic development.

International Development Association (IDA)

Provides concessional loans (low-interest or interest-free loans) and grants to the world's poorest countries. Concentrates on projects addressing development challenges and improving living conditions for the poorest populations.

International Finance Corporation (IFC)

The private sector arm of the World Bank Group. Provides investment, advisory services, and resources to encourage private sector development in developing countries. Aims to promote sustainable private sector investment for economic growth and job creation.

Multilateral Investment Guarantee Agency (MIGA)

Provides political risk insurance and credit enhancement to encourage foreign direct investment (FDI) in developing countries. By mitigating risks, MIGA aims to attract private investors to projects that might otherwise be considered too risky.

International Centre for Settlement of Investment Disputes (ICSID)

Provides facilities for the arbitration and conciliation of investment disputes between governments and foreign investors. ICSID helps resolve conflicts related to international investment, promoting a stable and attractive environment for foreign investment.

<h3>IMF &amp; World Bank Influence on Kenya</h3>

The International Monetary Fund (IMF) and the World Bank have a significant influence on Kenya due to their involvement in providing financial assistance and policy advice to the country.

The two institutions have had a say in the <a data-link-role-code="open_new_tab" href="https://www.pulselive.co.ke/business/imf-recommend-dropping-of-fuel-subsidy-which-will-increase-the-fuel-prices-in-kenya/j5edk3r">removal of fuel and maize subsidies</a>, an <a data-link-role-code="open_new_tab" href="https://www.pulselive.co.ke/news/local/fuel-prices-are-will-go-up-as-the-government-phases-out-the-fuel-subsidy-in-2023/w82h14t">increase in fuel VAT to 16%</a>, <a data-link-role-code="open_new_tab" href="https://www.pulselive.co.ke/news/local/cs-machogu-launches-higher-education-financing-portal-for-scholarships-bursaries-and/w6e7wx7">new higher education funding</a>, and the <a data-link-role-code="open_new_tab" href="https://www.pulselive.co.ke/business/domestic/imfs-hand-in-sale-of-kicc-and-10-other-parastatals-in-kenya/nb5e2tq">privatization of parastatals</a>.

Here are some reasons why they have a lot of influence on Kenya:

Financial support: The IMF and the World Bank provide financial assistance to Kenya in the form of loans and grants.

Policy advice: The IMF and the World Bank offer policy advice to Kenya on various economic and development issues. This advice is based on their assessments of the country's general economic situation and policies, and it informs the World Bank's assistance programs.

READ: <a href="https://www.pulselive.co.ke/news/local/ruto-lectures-world-bank-imf-bosses-proposes-new-tax-based-global-financial-order/69rfrjd">Ruto lectures World Bank, IMF bosses, proposes new global financial order [Video]</a>

Capacity development: The IMF and the World Bank provide capacity development support to help Kenya build and maintain economic stability. This includes technical assistance, training, and knowledge sharing to improve the country's economic management and governance.

Sectoral focus: The World Bank has a significant presence in Kenya, with investments in various sectors such as health, transport, finance, fintech, and tourism. This focus on specific sectors helps Kenya address its development challenges and achieve its economic goals.

Collaboration: The IMF and the World Bank work closely together on country assistance and policy issues that are relevant to Kenya. Their staff collaborate on assessing financial stability, specifying policy components, and addressing development challenges.

A collage of World Bank President Ajay Banga and IMF Managing Director Kristalina Georgieva

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