President Ruto expressed a bleak outlook for the country’s future on Sunday following the rejection of the proposed Finance Bill, 2024. He stated that Kenya has regressed by two years and will need to borrow at least Ksh.1.2 trillion this year to keep the government operational.
“We have dropped the Finance Bill. What does that mean? It means we have gone back almost 2 years,” President Ruto told journalists at State House on Sunday.
“It means that this year we are going to borrow 1 trillion shillings to be able to run our government.”
President Ruto informed the Presidential roundtable that dropping the Finance Bill means the government will be unable to confirm 46,000 Junior Secondary School teachers on permanent and pensionable contracts. He stated that without the funds his administration hoped to raise, it will be impossible to assist Kenyan farmers in ensuring they receive at least Ksh.50 per litre of milk.
“It means we can not help our farmers get a return of Ksh.50 per lire of milk, we can not pay coffee farmers’ debs, we can not support the cherry fund, and we can not help Mumias farmers with their debts,” he said.
President Ruto announced last Wednesday that he would not sign the contentious Finance Bill into law, following days of growing unrest and protests in more than 15 counties. The bill aimed to generate 346 billion Kenyan shillings ($2.68 billion), or 3% of GDP, in additional revenue.
Kenya agreed to a four-year loan with the IMF in 2021 and signed on for additional lending to support climate change measures in May 2023, bringing its total IMF loan access to $3.6 billion. The IMF requires regular reviews of reforms, conducted every six months for Kenya, before releasing tranches of funding.
Earlier this month, Kenya reached a staff-level agreement with the IMF on a seventh review. This agreement came before President William Ruto abandoned the tax bill, even as warnings of revenue shortfalls were issued. The review theoretically paves the way for $976 million, but it has yet to secure crucial IMF board sign-off.
“There isn’t a great deal of room to manoeuvre unless you really start doing much more thorough reviews” of spending, said Giulia Pelligrini, senior portfolio manager with Allianz Global Investors, of what Kenya can do to meet targets. “So it’s going to be difficult.”
She added that a combination of government spending cuts and flexibility from the IMF on program targets was the likely outcome.
Following Ruto’s reversal, Kenya’s sovereign dollar bonds declined. Morgan Stanley noted that with eurobond yields back above 10%, Kenya had limited access to international bonds, which might compel the country to borrow more locally.
