Kenya out of debt distress on painful taxes — President Ruto

Speaking on Tuesday when he led the country in marking its 60th anniversary of Independence, Dr Ruto said the rollout of the tax measures contained in the Finance Tax Act 2023 over the last year were necessary sacrifices that would “make our freedom fighters proud.”

“The greatness and patriotic devotion of the people of Kenya have been on display during the past year. Together, we have made the right choices, sometimes taking very difficult and painful decisions, to steer Kenya back from the edge of the catastrophic cliff of debt distress, and move our nation in a new direction,” said Dr Ruto in his Jamhuri Day speech.

Dr Ruto insisted that if it were not for these tax measures, which include the doubling of the fuel value-added tax (VAT) from eight to 16 percent and the imposition of the 1.5 percent housing levy, Kenya would have joined countries such as Zambia and Ghana, which have defaulted and Ethiopia, which is on the verge of defaulting.

“There is every reason to believe that without serious sacrifices and hard work over the past year, the crises, threats, and challenges in the global economic and geopolitical environment confronting us would have overwhelmed us, as indeed, it has many countries,” said the President.

Without expounding, he said that his government has had to cut expenditures and defer the implementation of critical development programmes to stabilize the economy.

However, the latest data in the Supplementary Budget Estimates for the current budget shows that although the Ruto administration cut development expenditure, it increased its maiden budget by Sh187.3 billion to confront economic headwinds related to missed tax targets, huge debt repayment obligations and spending pressures from critical sectors such as education and health.

“Proudly, these sacrifices have paid off: I can now confirm that Kenya is safely out of the danger of debt distress and that our economy is on a stable footing,” said Dr Ruto.

But even as he praised the result of his policies, the members of the National Assembly are up in arms over the failure of the National Treasury to release the cash for the National Government Constituency Development Fund (NG-CDF), even as the Treasury Cabinet Secretary Njuguna Ndung’u said the country was still facing a cash flow crisis.

“We are not getting adequate tax revenues. I can tell you, we even have trouble with salaries with arrears. We are clearing salaries with arrears. Imagine that,” said Prof Njuguna.

Kenya is also racing against time to raise enough funds to pay a $2 billion Eurobond (Sh306.97 billion) that is maturing in June next year.

President Ruto had last month said that the government would pay back part of the 2014 Eurobond by the end of this month as it moves to calm a global financial market that has been jittery over the country’s ability to meet its obligations next June.

The International Monetary Fund (IMF) then moved to rescue Kenya from plunging into a financial crisis after it confirmed that it was mobilising funds to help the country repay its Eurobond.

Besides approving an additional $938 million (Sh143.88 billion) in its sixth review under the Extended Fund Facility (EFF) and Extended Credit Facility (ECF), the IMF cited the “uncertainty” over Kenya’s ability to meet its June 2024 Eurobond obligation, as the main reason for its intervention.

Kenya, like many other frontier and emerging economies, has struggled to access the international capital markets, making it difficult to get funds for retiring the Eurobond that it raised nine years ago.

“Despite continued commitment to the implementation of the IMF-supported economic program, which is broadly on track, uncertainty looms over Kenya’s effective access to international bond markets,” said the IMF in a press release following a staff mission to Nairobi from October 30 to November 15, 2023.

“This uncertainty is exerting substantial pressure on liquidity, primarily due to the sizable Eurobond maturing in 2024. Against this backdrop, the authorities are actively mobilising additional financing from their development partners, the IMF, and commercial sources while concurrently intensifying their efforts to enhance macroeconomic policies and implement structural reforms,” said the IMF.