President William Ruto has contradicted and negated his key campaign pledges against external borrowing and courted the International Monetary Fund (IMF), a Bretton Woods Institution for a Sh55.1 billion ($447.39 million) facility for his Sh3.64trillion budgetary support.
The move comes amid ballooning national public debt and an impoverished population coupled by rising cost of living and prices of basic commodities.
Currently, the country’s economy is saddled with debt, inflation, joblessness and national pessimism.
Following his election, President Ruto has inherited nearly Sh10 trillion debt from his predecessor Uhuru Kenyatta promising to fix the country’s shattered economy.
However, his new loan deal with the IMF portends a bleak future for taxpayers’ who will bear the painful conditions pegged to the new IMF loan of a broadened tax base and scrap the fuel subsidy.
Broadening the tax base means bringing more “hustlers” – Ruto’s core support base of informal workers – into the tax net majority of whom are in a shaky informal economy living from hand to mouth.
Similarly, scrapping fuel subsidies raised prices and led to further inflation, a key election platform President Ruto campaigned against and catapulted him to the helm of power.
President Ruto’s first budget of Sh3.64 trillion contained in the 2022 Budget Review and Outlook Paper (BROP) is an increase from an earlier estimate of Sh3.55 trillion and puts pressure on the Kenya Revenue Authority (KRA) to aggressively collect taxes.
Revenues are expected to increase to Sh2.9 trillion compared to Sh2.82 trillion given in the 2022 Budget Policy Statement.
Most of the new administration’s spending, which will begin next July, will be on programmes aimed at economic recovery, as Kenya tries to shrug off the negative effects of the Ukrainian war, Covid-19 and drought.
This will be an opportunity for Ruto, through his Treasury Cabinet secretary Njuguna Ndung’u to actualise some of the campaign promises they made including lifting millions of the poor from poverty by implementing policies that favour those at the bottom of the pyramid.
Income tax, which comprises employer and employee contributions, was increased from Sh1.18 trillion to Sh1.2 trillion, a sign that the government anticipates better job market fortunes. Excise duty has also been revised upwards to Sh352.7 billion from Sh346.9 billion following inflation adjustment on this tax head, popularly known as the sin tax.
Treasury currently anticipates increased excise tax revenue from alcoholic beverages, cigarettes, fruit juice, sodas, bottled water, cosmetics, and other beauty products.
The medium-term revenue strategy, which is currently being developed, will direct tax reforms, improve the tax system, and increase revenue over the medium-term, according to the Treasury.
During his campaign, Ruto made the economy the main focus promising Kenyans a radical transformation if he won. But in politics, promises and reality are two different things.
Implementing a manifesto will require money and new economic structures, and even face resistance from defenders of the status quo.
During his campaigns, Ruto said borrowing money to run the government will not be an option for his government.
“We will change this tradition of applying for loans and be all about investments and labor-intensive programs as opposed to capital-intensive projects,” he said while at a campaign rally in Kamulu, Nairobi.
He stated that some projects will have to be delayed and others postponed as there is not much money to continue working on them.
Ruto said the trips abroad by politicians were slowed down to reduce how money was used on things that are not much of a priority and he does not wish to keep on borrowing.
However, going against his words, Ruto recently took a Sh55.1 billion ($447.39 million) loan that was approved by the International Monetary Fund (IMF).
This followed the fourth review of the Sh288billion ($2.34 billion) 38-month Extended Credit Facility (ECF) and the Extended Fund Facility (EFF) arrangements with Kenya.
This brings the country’s cumulative disbursements under the EFF/ECF arrangements to about Sh203.84 billion ($1.655 billion).
In October, Sh3.02 trillion ($24.4 billion) of the country’s growing external debt rose to Sh4.35 trillion ($35.3 billion) with that proportion growing by 2.3 percentage points from 2021 and an increase of 3.4 percentage points compared to 2020.
Kenya’s National Treasury data shows the proportion of external debt denominated in the euro stood at 18.8 per cent in the same month, 4.1 per cent in yen, 5.3 per cent in yuan, and 2.3 per cent in pounds sterling while currencies accounted for 0.2 per cent of the total external debt.
Overall, the national government’s external debt stock increased by Sh24.78 billion ($201.4 million) from Sh4,334.79 billion ($35.2 million) in September 2022 to Sh4,359.57 billion ($35.4 million) in October 2022. This was attributed to disbursements made during the month and the exchange rate depreciation,” said the Treasury.
This comes at a time the Kenyan shilling has continued to weaken against the greenback due to the raises of lending rates by the US Federal Reserve causing an outflow of dollars from the global market into the US which heavily affected developing countries.
This month, the dollar was trading at a mean of Sh122.94 compared to a mean of Sh113.17 at the start of the year, a rise of 8.6 per cent, increasing the country’s external debt load.
