Kenyan police set up roadblocks on roads leading to the presidential palace today, while some protesters vowed to “storm the presidential residence” despite President William Ruto’s withdrawal from proposed tax increases that sparked a week of protests.
It is not clear to what extent the protesters will be satisfied with the president’s decision to withdraw the draft budget law, which he took yesterday the day after violent clashes that caused the death of at least 23 people, with protesters briefly storming the parliament building.
1) Why did protests break out in Kenya?
The unrest erupted over the 2024 bill, which aims to raise $2.7 billion in additional taxes to reduce the burden of the budget deficit, as interest payments alone consume 37% of annual revenues, with the country’s debt standing at $82 billion.
Protesters have called on the government to scrap the finance bill altogether, saying the tax increases will hurt the economy and raise the cost of living for Kenyans who are already struggling to make ends meet.
All of this comes amid a bitter economic crisis that has seen the value of the Kenyan shilling fall by 22% against the US dollar since 2022, causing food, transport and energy prices to soar, while incomes have remained largely unchanged.
But the International Monetary Fund says the government needs to raise revenues to reduce the budget deficit and government borrowing.
Last week, the government showed flexibility when Ruto agreed to scrap some of the new fees proposed in the finance bill, including new taxes on car ownership, bread, cooking oil and money transfers.
Despite widespread protests in 19 of Kenya’s 47 counties, lawmakers passed the Finance Bill on its second reading last Thursday, moving the contentious tax proposals to the next stage of approval.
In total, at least 23 people were killed, while 30 others are receiving treatment for gunshot wounds sustained during the nationwide protests against tax increases in Kenya, according to what the Kenya Medical Association announced yesterday.
2) Did the protests calm down after the project was withdrawn?
Protests subsided after the Kenyan president announced yesterday the withdrawal of the bill, but police are still wary of renewed protests, which have spread heavily in the capital, Nairobi, and other cities.
President William Ruto vowed in a speech yesterday that he would not sign the tax bill that sparked the protests, adding: “I listen carefully to the Kenyan people who have clearly rejected the bill, I will back down to their demands. Accordingly, I will not sign the bill and it will be withdrawn later.”
The president indicated, without going into details, his intention to launch a dialogue with Kenyan youth, and that he would work on austerity measures, starting with reducing presidential expenses, to fill the country’s budget deficit.
Limited protests and demonstrations remained in several regions, raising the level of demands for the president to step down from power as a result of the blood that fell in the protests, after these demands were previously limited to repealing the new law.
Ruto is widely seen in Kenya as a frequent traveler of large planes, and his critics call him the “flying president.” While this travel has brought him criticism, he justifies it by saying that his foreign visits are necessary to attract investments to the cash-strapped country.
Critics also accuse the president of kowtowing to Western-led institutions such as the International Monetary Fund, which supported the country in now-rejected tax reforms, as part of a loan facility the president said was necessary to “preserve debt sustainability.”
3) How do Kenyans view the move?
It is expected that this step will be seen as a victory for a protest movement that began a week ago and has evolved from rejection of the draft law on social media to massive demonstrations demanding political reform, in the most prominent crisis facing the Ruto administration, who assumed the presidency of the country two years ago.
Ruto’s decision may contribute to accommodating the protests, but the president will remain stuck between the demands of lenders such as the International Monetary Fund, which is urging the government to reduce the deficit to obtain additional financing, and citizens who suffer from the high cost of living.
4) What is the economic situation of Kenya?
In April 2021, the International Monetary Fund Board agreed to lend Kenya $2.34 billion, in order to “resuscitate growth in the economy after the shock associated with the Corona pandemic and reduce debt-related vulnerabilities by consolidating public finances for several years by increasing revenues while controlling expenditures.” “.
The program was extended in July 2023 for a period of 20 months.
The program went through 6 reviews, and through the last review passed by the Fund last January, Kenya obtained $624.5 million.
At the beginning of this year, the Fund expected the inflation rate in Kenya to rise in the first half of 2024, driven primarily by fluctuations in global oil prices and the rise in the local currency exchange rate, but it expected it to remain under control due to tightening monetary policy during 2023.
He called on Kenya to reduce its debt burden towards the new debt level of 55% of GDP in current terms by 2029.
The International Monetary Fund called on Kenya in January to implement a “medium-term revenue strategy” to increase the tax base (increase taxpayers) to create more spending space to improve public services.
The Fund urged Nairobi to monitor the risks facing the planned fiscal consolidation process and immediately activate three contingency plans as needed.
5) What are the expectations for Kenya’s economic performance?
These are the International Monetary Fund’s expectations for Kenya’s performance during the coming period:
- Inflation in 2024 will be around 5%, increasing to 5.3% in the next two years.
- Kenya’s revenues are expected to increase by 19% of GDP during the current year, 19.1% in 2025, and 19.5% in 2026.
- Kenya’s economy is expected to grow by 5% in 2024 and 5.3% in the next two years.
