Kenya’s ballooning debt is expected to grow further after deadly protests led to the rejection of a finance bill that President William Ruto deemed necessary for raising revenue.
He now warns of “huge consequences.”
Amid public calls for his resignation, Ruto has announced plans to cut the $2.7 billion budget deficit by half and borrow the rest, without specifying the sources of these funds.
Protests fueled by anger over government excesses have prompted Ruto to pledge cuts in his office’s funding and eliminate funding for the offices of the first lady, the vice president’s wife, and the wife of the prime Cabinet secretary. Nearly four dozen redundant state enterprises will be closed.
Ruto’s attempt to introduce new taxes to repay Kenya’s $80 billion debt has made him deeply unpopular. This debt constitutes about 70% of Kenya’s GDP, the highest in two decades.
Economists question how Ruto’s administration will manage debt repayment without exacerbating public discontent or slowing down the economy, which grew by 5.6% in 2023. Mbui Wagacha, a former adviser to President Uhuru Kenyatta, stressed the need for a professional budget and management body. He warned that further borrowing could be disastrous and suggested diplomatic efforts to attract investment and restructure debt.
Economist Ken Gichinga echoed concerns about borrowing, noting it could slow down the economy by raising interest rates and increasing repayment costs. He emphasized the importance of a job-centered economic policy and lower taxes to stimulate business growth and employment.
Ruto has advocated for self-sustainability through increased revenue rather than borrowing, but attempts to raise taxes have been met with public resistance, including protests that stormed parliament.
The IMF, criticized during the protests, has stated its goal of helping Kenya overcome its economic challenges. Gichinga called for the IMF to be a stronger development partner, focusing beyond debt sustainability.