In a stark address on Sunday, President William Ruto outlined a grim forecast for Kenya’s economy following the rejection of the proposed Finance Bill, 2024. The President emphasized that this setback pushes the nation back by two years, necessitating at least Ksh.1.2 trillion in borrowing to maintain government operations.
“We have dropped the Finance Bill. What does that mean? It means we have gone back almost two years,” President Ruto stated during a press briefing at State House. “This year, we are going to borrow one trillion shillings to run our government.”
The President highlighted the cascading effects of this financial shortfall, including the inability to secure permanent and pensionable contracts for 46,000 Junior Secondary School teachers. Moreover, without the anticipated funds, crucial support for Kenyan farmers is also in jeopardy.
“We cannot help our farmers get a return of Ksh.50 per litre of milk, we cannot pay coffee farmers’ debts, we cannot support the cherry fund, and we cannot assist Mumias farmers with their debts,” Ruto detailed.
The Finance Bill, which was projected to generate Ksh.346 billion ($2.68 billion) or 3% of GDP in additional revenue, was abandoned after widespread protests in more than 15 counties. This decision follows Kenya’s recent agreements with the International Monetary Fund (IMF) for a four-year loan and additional climate change support, totaling $3.6 billion.
Despite a staff-level agreement with the IMF on a seventh review earlier this month, President Ruto’s withdrawal of the tax bill casts doubt on securing the next tranche of $976 million from the IMF, pending board approval.
Financial experts, including Giulia Pelligrini from Allianz Global Investors, warn of limited options for Kenya to meet its targets without substantial spending reviews and potential flexibility from the IMF on program targets. The rejection has already impacted Kenya’s sovereign dollar bonds, with yields rising above 10%, suggesting limited access to international bonds and an increased likelihood of local borrowing.
Morgan Stanley analysts note that this financial predicament could force Kenya to seek more domestic funding, adding further strain to the nation’s economic stability.