(Bloomberg) -- Kenyan President William Ruto fired most members of his cabinet in the wake of anti-tax protests that claimed at least 41 lives. Thousands of youths have taken to the streets of Nairobi, the capital, and other towns since mid-June to demand the withdrawal of levies on items ranging from bread and diapers to imported wheelchair tires. The demonstrations turned deadly when police used teargas, water cannons and live bullets to disperse the crowds. While Ruto initially described the agitation as treason, he later backtracked and refused to sign a new law that had been passed by parliament to raise the additional revenue. The concessions will undermine efforts to steady the state’s finances and access additional support from the International Monetary Fund.
1. Who was dismissed?
The entire executive except the deputy president and prime cabinet secretary, who oversees foreign affairs. Ruto said he will consult widely before appointing a new broad-based administration that will assist him in dealing with key priorities, including tackling high levels of debt, creating jobs and eradicating corruption. The reshuffle could open the door to including members of the opposition parties in the cabinet. Bureaucrats will run the government in the interim and its operations will continue as usual, according to the president.
2. How will the scrapping of the new taxes affect the budget?
The Treasury envisioned that the new levies would generate an additional 346 billion shillings ($2.7 billion) in the financial year that begins July 1. Since the unrest, it has reined in its ambitions, saying it intended to reduce expenditure by 177 billion shillings and borrow the balance. A budget deficit of 4.6% of gross domestic product is anticipated in 2024-25, compared with an earlier estimate of 3.3%. In July, Moody’s Ratings reduced Kenya’s rating one level to Caa1, or seven notches into junk, and maintained its negative outlook on the country’s debt. The company doesn’t expect the government to introduce significant revenue-raising measures in the foreseeable future, given the heightened social tensions.
3. How does the IMF fit in?
Kenya agreed to an economic reform program with the IMF in 2021 and committed to reducing the budget deficit, increasing tax collection and curbing wasteful government spending in exchange for funding. The amount the government can access has been adjusted several times and stood at about $3.6 billion in June 2024 — most of which has already been disbursed. The IMF is committed to working with Kenya and is confident it can find a “balanced path forward” for its economy, according to its spokeswoman Julie Kozack. Kenya’s debt equates to the equivalent of two thirds of GDP, and the IMF considers it at high risk of distress. The country needs about $26 billion over the next decade to pay off existing foreign debts, according to David Ndii, chairman of Ruto’s Council of Economic Advisor. That excludes annual interest of about $1.5 billion.
4. Is Ruto’s hold on power under threat?
It’s hard to tell, and the answer will likely hinge on the credibility of the new team he puts together. The protests have largely been organized on social media and its unclear whether the cabinet shakeup will placate those who’ve been participating. Ruto retains a tight hold on the ruling party and an internal revolt is unlikely, although the inclusion of opposition officials in the cabinet could stoke internal dissent. Impeaching the president requires the backing of two-thirds of lawmakers, a threshold that’s unlikely to be met.
--With assistance from Bella Genga and Eric Martin.
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