Kenyan President William Ruto used his first State of the Nation Address in Parliament Thursday to defend his administration’s IMF and World Bank-backed economic reforms blamed for contributing to the high cost of living in the country.
Ruto said the reforms, which include scrapping of consumption subsidies on fuel and maize flour introduced by the previous administration of former President Uhuru Kenyatta and aggressive taxation meant to wean the country off its binge borrowing, had helped to stabilise the economy and made the public debt sustainable.
“We must admit that as a country, we had been living large and way beyond our means. The time has come, therefore, to retire the false comforts and illusory benefits of wasteful expenditure, and counterproductive subsidies on consumption by which we dug ourselves deeper into the hole of avoidable debt. The new direction may not be easy, but it is ethical, responsible, prudent, and most importantly, necessary. We have had to take hard decisions and make painful choices because we owe it to Kenyans to do the right thing and confront facts as they are without flinching or equivocating,” the president said.
Read: Time for painful choices, Ruto tells Kenyans
During the first term of Kenyatta between 2013 and 2017, Kenya ramped up borrowing, mostly from China, to build mega infrastructure such as roads and a standard gauge railway. Chinese loans grew from Ksh63 billion ($420 million) to Ksh478 billion ($3.186 billion) within the five years, making the Asian economic giant Kenya’s biggest bilateral lender.
With China having signalled a reduction of its lending to African countries, the IMF and the World Bank increasingly grew their clout in Kenya in the last three years of Kenyatta, reclaiming the influence they last wielded over the country’s economic policies during the administration of Mwai Kibaki between 2002 and 2013.
Aversion to debt
With China having signalled a reduction of its lending to African countries, the IMF and the World Bank increasingly grew their clout in Kenya in the last three years of Kenyatta, reclaiming the influence they last wielded over the country’s economic policies during the administration of Mwai Kibaki between 2002 and 2013.
Kenya also showed aversion to expensive commercial debt to cut back on ballooning repayments.
But debt repayments still gobbled up 65 percent of tax revenues at the time Kenyatta left office in 2022.
Read: Weak shilling raises Kenya debt repayment
Ruto, who served for 10 years as deputy president under Kenyatta but regularly speaks publicly about his admiration for the late Kibaki, is betting on much better relations with the Bretton Woods institutions to deliver on his campaign promise to pull Kenya out of the debt hole and have the economy work for millions of the country’s underprivileged people.
“We have worked hard, at home and further abroad, to mobilise a broad coalition of bilateral development partners, multilateral development banks and agencies, which have rallied to pull our country back from the brink of debt distress and set us firmly on the path towards sustainable economic growth,” he said in his State of the Nation Address Thursday.
“Our efforts to stabilise the situation have yielded such progress that next month, in December, we will be able to settle the first $300 million instalment of the $2 billion Eurobond debt that falls due next year. I can now state with confidence that we will and shall pay the debt that has become a source of much concern to citizens, markets and partners.”
Read: Kenya calms markets with $300m early Eurobond repayment
While the president’s speech has been credited with helping calm the global debt markets, his continued defence of some unpopular IMF and World Bank-backed economic policies comes with a measure of political risk.
MPs and senators affiliated to his ruling Kenya Kwanza coalition were reported in the local media to have warned that the high cost of living, aggravated by a slew of taxes and levies such as a doubled VAT on fuel, was making his government unpopular.
A 1.5 percent housing tax has eroded many housholds’ purchasing power. A proposed 2.75 percent deduction from workers’ gross monthly salaries towards universal health coverage promises to make it worse.
Some of the lawmakers reportedly expressed fears about their personal political survival, citing incidents where they have faced hostility in their constituencies over their association with some of the government’s unpopular policies. They suggested that the government explore ways of cushioning households against the rising cost of living, including reintroducing the fuel subsidy or removing some fuel taxes.
It was the first time ruling coalition MPs were seen challenging the administration’s policies in the presence of the president.
The president is said to have ruled out any reliefs on fuel, saying the high prices of the commodity in the country were down to the weakening of the shilling against the dollar and the cost of crude on the global markets.
However, Kenya is among countries where the government collects the highest taxes on fuel, with its share of taxes in the final price surpassing that of bigger economies such as the US and South Africa. Fuel taxes in Kenya account for at least 40 percent of the cost of every litre of super petrol and diesel.
Read: Kenya’s fuel taxes beat SA, US on higher VAT
The government has also come under pressure to address the high cost of living at the ongoing bipartisan talks initiated by Ruto and opposition leader Raila Odinga to resolve the grievances that saw the latter lead economically disruptive anti-government protests between March and July.
Last week, Odinga’s Orange Democratic Movement (ODM) party sought to link the IMF and the World Bank to the cost of living woes, protesting invitations sent to experts from the two institutions to appear before the National Dialogue Committee spearheading the talks.
On Thursday, the president acknowledged the cost of living was a problem in the country and sought to amplify the impact of his administration’s strategy to boost agricultural production through distribution of subsidised fertiliser and expansion of post-harvest storage facilities in bringing down the prices of the staple maize flour.
He still has quite some work to do about the public trust deficit though, with media fact checkers having pointed out striking differences between the prices he quoted and those in the supermarket price tags.
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