High cost of living, record debt to shorten new Kenyan President’s honeymoon

By VINCENT OWINO

Even as the new Nairobi government basks in the warmth of political victory from recent polls, experts predict the honeymoon will be short-lived thanks to a growing list of challenges.

In fact, after being declared the winner of the presidential election, William Ruto said there was little time for luxury: his government would take off with a deeply divided nation and a struggling economy.

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

The campaign by Dr. Ruto focused on renewing the economy, empowering the lowly and neglected, reducing the cost of living within the first 100 days, and creating jobs for the youth. But first he must overcome upcoming legal challenges thrown his way by rival Raila Odinga, who has dismissed the results.

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

With a debt of over $70 billion – about 70 percent of GDP – Kenya is on the brink of a debt crisis and the International Monetary Fund has advised it to slow borrowing.

advertisement

Read: African leaders congratulate William Ruto on Kenya’s election victory

Parliament had to raise the country’s debt ceiling three times during President Uhuru Kenyatta’s tenure to allow the state to fund persistent budget deficits. Now the national debt is capped at Ksh 10 trillion ($83.6 billion), leaving the new government very little room to borrow to bolster 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. Odingas Azimio la Umoja One Kenya Coalition won a majority in the National Assembly. But 10 of the independent MPs lean towards Dr. Ruto’s side, although Odinga’s side could still have the majority as six of the elected members whose parties previously defected to Ruto’s camp are obligated to remain loyal to him Azimio up to three months after the election.

In this way, a Ruto government awaits a struggle for supremacy, and amending laws, let alone new ones, that might be introduced by his side of the divide could face resistance if no political agreement is reached.

Also read: Truckers resume regional operations after Kenya’s election stalled

But the legislature is not the only hurdle a Ruto government must overcome to raise funds through borrowing. Due to the low level of interest rates, local investors are becoming increasingly apathetic about buying government bonds. That month, the Treasury fell 23 percent below target as investors demanded higher rates, forcing the Treasury Department to reject most offers.

In June, the government failed to issue a US$1 billion Eurobond due to increased costs in the international market and resorted to cheaper credit.

economic transformation

registered mail The conversationKathleen Klaus, a professor at the University of San Francisco, said that Dr. While Ruto has promised bottom-up economic transformation, his role as deputy president in the previous government says little about his ability or will to push through transformative economic policies.

“In the short term, perhaps the most important thing for the ordinary Kenyan is the ability to resume normal life. But with the leadership of Ruto’s rivals and some electoral body officials questioning the results of the presidency, the resumption of normal life may be on hold,” she wrote.

Read: Election in Kenya: Officials reassure country of safety

Kenyan economist Prof. XN Iraki wrote on the same platform that Dr. Ruto means Kenyans will be more confronted with the status quo.

“He and the coalition behind him appear to be strong believers in the market economy, in which the government has little intervention in production and pricing. But the coalition will face the problem of placating the “rabble-rousers” who have been promised transformation through bottom-up economics.

Ruto has used “Hustler” to refer to informal sector actors and young people struggling to make ends meet.

“Beyond easy credit, the people Ruto was referring to will expect some quick fixes to celebrate their victory, such as facilitating business transactions or tax cuts,” said Prof. Iraki.

“We can expect some economic strain – lower than expected economic growth – in the first six months as the new regime tries to reconcile its promises with reality. What is interesting is how it will take on key foreign and local economic players. Will they become friends or keep on their toes? A feel-good effect could reduce drag, especially if any electoral disputes are resolved amicably. I hope that the new policy will not scare away large investors and small businesses as it could slow down economic activity. The next regime must be willing to deflate the economic balloon of “great expectations” stemming from promises made to everyone, especially the hustlers.

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

Read: Blinking attaches securities, rights to conditions of trade with Africa

Foreign investors have also fled capital markets amid currency depreciation and uncertainty stemming from external economic shocks, leaving the country’s stock market in limbo.

In addition, the state has a tight budget after a series of subsidies intended to cushion citizens from rising fuel and commodity prices, some of which have since been halted due to “insufficient tax credits”.

It will hardly be practical to revive the subsidy programs as the IMF has shown a lack of support for them and has instead pushed for targeted interventions.

Reports show that several Kenyans are taking out personal and household loans to catch up with rising living costs as the monthly inflation rate rose to 8.1 percent, a level not seen in five years.

Monetary policy interventions aimed at curbing ongoing inflation have so far been ineffective as experts argued they needed to be complemented by fiscal policy measures such as cutting sales taxes and import tariffs.

cost of living

However, with public coffers already tight, fiscal intervention may not be an option and the government must contend with the high cost of living.

Read: Explainer: What comes after the stalemate in Kenya’s William Ruto-Raila Odinga election results?

The country faces food insecurity even after four missed rainy seasons, which has led to “the worst drought” in the country and the entire region in 40 years.

Already more than four million Kenyans are at risk of starvation and are in need of immediate food aid costing $180.7 million, according to the latest data from the Intergovernmental Agency on Development.

At the same time, almost 27 percent of working-age Kenyans are unemployed, while more than 61 percent are employed in the informal sector, with youth being hardest hit.

And while many employers say the Kenyan education system produces “half-baked” graduates who need retraining after employment, Dr. Ruto campaigned to make changes to the newly launched Competency-Based Curriculum (CBC) aimed at addressing the issue.

The World Bank has lauded education reforms in the country, saying the new curriculum represents a commendable improvement in literacy, or languages ​​and arithmetic – the two fundamental subjects learners interact with early in their school years.

However, the new curriculum was hastily implemented by stakeholders as too demanding, too expensive and without proper consultation. Some leaders in the camp of Dr. Ruto have cited this as reasons for scrapping the system after taking office.

dr However, Ruto promised a “hybrid” education system, recognizing that removing it would be costly and disruptive to students, government and parents.

Also read: Kenyan schools reopen despite calendar disruption due to elections

Now the pioneering cohort of the CBC system is set to transition to upper secondary education next year and there is little preparation for that as existing secondary schools are already overcrowded after the government introduced a 100 per cent transition policy in 2018. The new government will need to mobilize funds to hire additional teachers, procure study materials and facilitate the introduction of upper secondary education, among other things.

dr Ruto also faces the difficult task of uniting the country, a task his predecessor began through the Building Bridges Initiative, which the court stopped as unconstitutional.

President Kenyatta sought to end the “winner-takes-all” situation in Kenya’s system of government, which he says leads to divisions as a loser in an election and makes supporters feel left out of government.

About Sonia Martinez

Check Also

‘Crazy’ converting country’s reserves into bitcoins, says Central Bank of Kenya

Central Bank of Kenya (CBK) senior official Patrick Njoroge has portrayed the placement of the …