Kenya’s Ruto rethinks debt problem after tax plans scuttled

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President William Ruto’s recent efforts to raise around $2.6bn through tax increases failed after scores of protestors were killed in demonstrations across the country, compelling him to backtrack on the plan. The decision to abandon the contentious tax hikes, while politically expedient, has weighty implications for Kenya’s economy and its relationships with its creditors.

Kenya’s revenue shortfall has compelled Ruto to cut back on spending and rely even more dearly on creditors and the capital markets, signalling a challenging road ahead for economic recovery and debt management.  The supplementary budget that the National Treasury recently presented to lawmakers shows that the country’s fiscal deficit has widened to 4.2% of GDP, from 3.3% that was forecast in the initial budget presented before the protests erupted. Additionally, the revised revenue is 9% lower than the initial forecast, while spending has been reduced by about 2%.

To bridge the gap, Kenya will tap into net external borrowing of Sh356.4bn ($2.72bn) and net domestic borrowing of Sh404.6bn ($3.04bn), Treasury principal secretary Chris Kiptoo told lawmakers while presenting revised budget estimates.