Why President Ruto’s Withdrawal of Finance Bill Spells Doom for Kenyans

Kenya is in the throes of a severe economic crisis. The East African country is caught in a complex web of international loans, stringent conditions, and a controversial Finance Bill 2024, which has sparked fatal protests across the nation.

The root of the current unrest can be traced back to April 2021, when the Kenyan government signed a three-year, $2.34 billion loan agreement with the International Monetary Fund (IMF).

This loan came with specific conditions, which include:

1. The implementation of a national tax policy,

2. The removal of subsidies, including those on fuel

3. Ensuring the profitability of Kenya Power

When President William Ruto took office in August 2022, he inherited these IMF conditions.

In June 2024, Ruto’s government agreed to another deal with the IMF, to borrow $976 million. The IMF said it would release the funds on the condition that Kenya adjusts its 2024/25 budget to include more revenue-raising measures.

To meet these new conditions, Kenya introduced the controversial Finance Bill 2024, which aims to generate an additional $2.7 billion in taxes

This bill incited the already frustrated citizens, and escalated into violent demonstrations in the country. While expecting the IMF funds, Kenya borrowed another $1.5 billion Eurobond loan at 9.75% interest.

The plan with this fresh loan is to repay a $500 million Eurobond loan it borrowed earlier, which is almost due for repayment.

Interestingly, following the unprecedented widespread protests across Kenya, President Ruto succumbed to pressure by withdrawing the Finance Bill 2024. He said he won’t sign it. But the protesters now want more – they are demanding the President’s resignation.

The dilemma now is that, Kenya is in dire need of the IMF loan and the organisation is insisting on the implementation of the Finance Bill 2024 to meet its conditions before releasing the funds.

As it seems, Kenya might not be able to repay the $500 million Eurobond loan without the IMF loan.

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The Finance Bill effect

The Finance Bill comes as the country’s public debt soared to 68% of GDP, surpassing the 55% threshold recommended by the IMF.

The move sparked intense public backlash, escalating from social media campaigns to prolonged violent demonstrations that have seen fatalities and destruction of government buildings.

The protesters, who initially called for the complete withdrawal of the Finance Bill due to concerns over escalating living costs for 7.8 million impoverished Kenyans, have shifted their demands towards the resignation of the Ruto cabinet.

Kenyans on edge

The bill’s proposed tax hikes were seen as a financial burden and a continuation of neglect that citizens have felt for decades.

The situation has been exacerbated by President Ruto’s justifications, which compared Kenya’s tax situation to that of other African nations, an argument that has largely been met with disdain.

The root of the discontent appears to be a perceived prioritisation of international financial obligations over local welfare.

Critics argue that before imposing new taxes, the government should explore other fiscal avenues such as:

• Reducing the costs of governance to alleviate budgetary pressures.

• Fostering a business environment that encourages growth and increases the tax base naturally.

• Implementing technology to automate and streamline tax collection, ensuring efficiency and reducing corruption.

• Expanding tax inclusion to capture all eligible individuals and entities, ensuring fair taxation.

• Addressing loopholes and leakages in the current tax system to maximize revenue without increasing tax rates.

This comprehensive approach could potentially stabilise the economy and address public grievances more effectively than simply increasing taxes, which has so far only deepened the divide between the government and its citizens.