Financial experts are issuing dire warnings for Kenya following the rejection of the Finance Bill 2024, a move that has left the nation grappling with significant economic challenges.
President William Ruto's administration had proposed the bill to raise Ksh346 billion in new revenues, aiming to alleviate Kenya's burgeoning debt crisis. However, widespread protests against the bill led to its rejection, plunging the country into deeper uncertainty.
Kenya, East Africa's economic powerhouse, is now confronted with a daunting task: finding approximately Ksh3.332 trillion ($26 billion) over the next decade to repay existing foreign debts amidst severely limited revenue-raising options.
The rejection of the tax measures, intended to bolster the budget and reduce the deficit, has exacerbated concerns over the country's fiscal stability.
Public debt currently stands at about 70 per cent of Kenya's GDP, the highest in two decades.
Charlie Robertson, head of macro-strategy at FIM Partners, cautioned that the coming decade would be precarious for Kenya, requiring a delicate balance between social stability and stringent fiscal measures.
"It will need to balance social peace with the need to cut spending and reduce its interest bill," he remarked.
Adding, “There are no easy solutions.”
Economist Mbui Wagacha advocated for comprehensive reforms in Kenya's budget management, proposing the establishment of a professional oversight body akin to the Office of Management and Budget in the United States.
Wagacha warned against further borrowing, suggesting instead a diplomatic approach to attract investment and renegotiate existing debt terms.
The International Monetary Fund (IMF), a traditional source of financial support for Kenya, is unlikely to extend further assistance due to the country's inability to meet program targets. Meanwhile, attracting equity investment to alleviate debt pressures remains challenging amid global economic uncertainties and high interest rates.
In the absence of this, Kenya’s large external funding needs “will necessitate a tight policy stance over the medium term and continued strong support from multilaterals to plug the gap,” stated Patrick Curran, senior economist at Tellimer Ltd.
It faces “higher domestic funding needs as well, putting pressure on domestic yields and exacerbating issues around debt affordability,” he asserted.
In response to dwindling revenues, President Ruto announced a significant reduction in government expenditure by Ksh177 billion ($1.4 billion) and plans to increase borrowing to cover the revenue shortfall.
Biniam Bedasso, a research fellow at the Center for Global Development, highlighted the broader implications of Kenya's fiscal challenges. "The protests underscore the risks of aggressive fiscal measures that could undermine political stability and deter investor confidence," he noted.
Despite these challenges, Bedasso emphasised that Kenya still has avenues to pursue a sustainable economic and social strategy, including rationalising public expenditures, negotiating with creditors, and promoting growth-oriented investments.
