High cost of living, record debt to cut short new Kenyan president’s honeymoon

Saturday August 20 2022
Kenyans are experiencing high cost of living caused by local and global shocks.

Kenyans are experiencing high cost of living caused by local and global shocks. PHOTO | FILE


Even as the new Nairobi administration basks in the warmth of political victory from the recent polls, pundits reckon that honeymoon will be shortlived, thanks to a growing list of challenges.

Indeed, after he was declared winner of the presidential election, William Ruto said there was little time for luxury: His administration would hit the ground running, what with a severely divided nation and a battered economy.

Read: Can Kenya’s new leader fill Uhuru Kenyatta’s large EAC shoes?

Dr Ruto’s campaign was centred on revamping the economy, uplifting the lowly and the neglected, lowering the cost of living within the first 100 days and creating jobs for the youth. But, first, he must overcome the impending legal challenges placed in his path by his rival Raila Odinga, who has rejected the results.

The Kenyan economy is in the doldrums, with a heavy debt, high inflation rate, high unemployment rate, and an unstable currency weighing heavily on recovery efforts.

With a debt stock of over $70 billion – about 70 percent of GDP - Kenya is on the brink of debt distress and the International Monetary Fund has advised it slows down on borrowing.


Read: African leaders congratulate William Ruto for winning Kenyan election

Parliament had to raise the country’s debt ceiling thrice during President Uhuru Kenyatta’s tenure to allow the state to finance persistent budget deficits. Now, public debt is capped at Ksh10 trillion ($83.6 billion), which leaves very little headroom for the incoming government to borrow to supplement domestic income.

Debt ceiling

Raising the debt ceiling again may not be easy for the government if one side of the political divide opposes it. Mr Odinga’s Azimio la Umoja One Kenya coalition won a majority in the National Assembly.  But 10 of the independent MPs are leaning towards Dr Ruto’s side, although Odinga’s side might still enjoy majority as six of the elected members whose parties had earlier defected to Ruto’s camp are bound to stay loyal to Azimio until three months after election.

This way, a supremacy battle awaits a Ruto administration and amendment Bills, let alone new ones that may be introduced from his side of the divide, could face opposition if a political deal is not reached.

Also read: Truckers resume regional operations after Kenya elections hitch

But the legislature is not the only hurdle a Ruto government will have to overcome to raise funds through borrowing.  There is increasing apathy among local investors to purchase government paper due to low interest. This month, the Treasury bond fell 23 percent below target as investors demanded higher rates which forced the Treasury to reject most offers.

In June, the government failed to issue a $1 billion Eurobond due to increased costs in the international market, resorting to more concessional loans.

Economic transformation

Writing in The Conversation, Kathleen Klaus, a professor at the University of San Francisco, said that while Dr Ruto has promised “bottom-up” economic transformation, his role as deputy president in the previous administration provides little indication of his ability, or will, to push through transformative economic policies.

“In the short-term, what may matter most for ordinary Kenyans is the ability to resume normal life. But with the leadership of Ruto’s rivals and a section of electoral body’s officials questioning the presidential results, the resumption of normal life may remain on hold,” she wrote.

Read: Kenya election: Officials assure country of security

Kenyan economist Prof XN Iraki wrote on the same platform that Dr Ruto’s victory means Kenyans will face more of the status quo.

“He, and the coalition behind him, seem to be firm believers in the market economy where the government hardly intervenes in production and price setting. But the coalition will be faced with the problem of placating the ‘hustlers’ who have been promised a transformation through bottom-up economics.

Ruto has used “hustlers” to refer to informal sector players and young people who struggle to make ends meet.

“Beyond easy credit, the people Ruto was referring to will expect some quick fixes to feel good about their victory, such as the ease of doing business or tax reduction,” said Prof Iraki.

“We can expect some economic drag in the first six months – lower economic growth than expected – as the new regime tries to balance off its promises with reality. Of interest is how it will accommodate key foreign and local economic players. Will they be befriended or kept on their toes? A feel-good effect could reduce the drag, particularly if any electoral disputes are resolved amicably. I hope new policies will not spook big investors and small enterprises as this could lead to a chill in economic activities. The next regime must be ready to deflate the ‘great expectations’ economic balloon resulting from promises made to everyone, particularly the hustlers.

“In general, I expect economic disappointment within the first six months of Ruto’s rule. After that, we can start seeing through the political fog. The winner will need the loser, and it’s unclear what economic dance they will engage in.”

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Foreign investors have also fled the capital markets in the face of a depreciating currency and uncertainty due to external economic shocks, leaving the country’s stockmarket in limbo.

Furthermore, the state is running on a severely strained budget following a series of subsidies meant to cushion citizens from rising fuel and commodity prices, some of which have since been discontinued due to “inadequate exchequer releases.”

It will be nearly impractical to revive the subsidy programmes, as the IMF has showed lack of support for them, urging targeted interventions instead.

Reports show that several Kenyans are taking personal and household loans to catch up with the spiralling cost of living as the monthly rate of inflation has risen to 8.1 percent, a level not seen in five years.

Monetary policy interventions targeted at taming running inflation have so far been ineffective with experts arguing that they need to be complemented by fiscal policies such as a reduction of value added taxes and import duties.

Cost of living

But, with the public coffers already low on funds, the fiscal interventions may not be an option, leaving the government to grapple with the high cost of living.

Read: Explainer: What next after William Ruto-Raila Odinga Kenya election results stalemate

The country is also facing food insecurity after four failed rainy seasons, which has resulted in “the worst drought” in the country and across the region in 40 years.

Already, more than four million Kenyans are on the brink of starvation and in need of immediate food assistance, which will require $180.7 million, according to the latest data from the Intergovernmental Authority on Development.

At the same time, nearly 27 percent of Kenyans of working age are unemployed, while more than 61 percent are employed in the informal sector, with the youth being the most affected.

And while many employers say the Kenyan education system produces “half-baked” graduates who need to be retrained after employment, Dr Ruto promised on the campaign trail to make changes to the newly implemented Competency-Based Curriculum (CBC) that was aimed at addressing the problem.

The World Bank has praised the education reforms in the country, saying the new curriculum marked a commendable improvement in literacy or languages and arithmetic – the two basic subjects learners interact with at the start of their schooling.

The new curriculum has however been criticised by stakeholders as too demanding, expensive, and hurriedly implemented without proper consultations. Some leaders in Dr Ruto’s camp have cited these as reasons for scrapping the system once they take office.

Dr Ruto however promised a “hybrid” education system, recognising that revoking it would be costly and disruptive to pupils, the government and parents.

Also read: Kenyan schools reopen amid disruption of calendar due to elections

Now, the pioneer cohort of the CBC system is set to transition into junior secondary schools next year, and there is little preparation for it, with existing secondary schools already crowded after the government implemented a 100 percent transition policy in 2018. The incoming government will need to mobilise the funds to, among other things, employ additional teachers, procure study materials, and facilitate the introduction of the junior secondary schools.

Dr Ruto also faces a difficult task of uniting the country, a job his predecessor had begun, through the Building Bridges Initiative that was stopped by the court as being unconstitutional.

President Kenyatta was seeking to end the winner-takes-all situation in the Kenyan governance system, which, according to him, causes divisions as the losing party in an election and their supporters feel excluded in a government.