President William Ruto’s administration is facing a challenging economic situation in Kenya, marked by weakening fundamentals and increasing debt. This has been exacerbated by a political crisis sparked by new taxes and a high cost of living. The opposition alliance, Azimio la Umoja One Kenya, has been sponsoring civil disobedience to protest against the unpopular Finance Act 2023, which includes a double value added tax on petroleum products and new taxes on salaried workers.
The protests have caused significant disruptions, with businesses facing losses running into millions of dollars. The Kenya Association of Manufacturers (KAM) reported that the manufacturing sector, contributing about Ksh1 trillion to the economy annually, was hit particularly hard on the Northern Corridor due to disruptions in the movement of goods. The ongoing protests could potentially lead to daily losses of up to Ksh2.86 billion, affecting the country’s ambitious plan to grow the manufacturing sector contribution to GDP.
Fitch, a rating agency, recently revised Kenya’s credit status to negative from stable, citing a poor macroeconomic environment and uncertainties over the government’s debt repayment capacity. President Ruto, who came into office with promises to transform the economic situation, is now grappling with the need to balance the demands of the World Bank and International Monetary Fund (IMF) with the citizens’ call for relief from the high cost of living.
The government has pursued IMF-led policy measures, including fiscal consolidation and debt sustainability measures, tightening monetary policy, and eliminating fuel subsidies, among others. However, these measures have led to widespread protests and legal challenges, making the fiscal consolidation process more difficult. Foreign direct investment has also declined, and the government is facing challenges in mobilizing resources to fund the budget, with a significant portion going toward debt repayment.
The implementation of the Finance Act 2023, designed to raise revenue through punitive tax measures, has faced opposition from various groups, including the Catholic Church and the Law Society of Kenya. The courts suspended parts of the act, but the government proceeded with implementing the fuel tax, which has added to public discontent.
The situation has become increasingly volatile, with violent protests and reports of excessive use of force by security agents. Calls for a quick resolution to the crisis and respect for people’s rights to protest have come from both local and international human rights organizations.
Overall, President Ruto’s advisers are facing significant challenges in finding a solution to the economic crisis while dealing with mounting pressure from both the citizens and international financial institutions.