(Bloomberg) -- Anti-government demonstrations have sparked a political shakeup in Kenya. After firing all but one of his ministers in the wake of protests in which at least 61 people have died, President William Ruto has named a new cabinet that for the first time since 2008 comprises members of both the ruling coalition and the opposition. While Ruto initially described the marchers as treasonous, he later bowed to public pressure and refused to sign a contentious new tax-raising law that had been passed by parliament. Ruto is still under pressure, with protesters calling on him to step down. And the concessions he made may undermine efforts to steady the state’s finances and access additional support from the International Monetary Fund.
What are Kenyans protesting?
Starting in mid-June, thousands of youths have taken to the streets of the capital Nairobi and other towns to protest the plan to impose new taxes on a wide range of items including bread, diapers and imported wheelchair tires. Over time, their cause widened to include demands to end deep-rooted corruption, stop widespread wastage of public funds, and deliver justice for those killed in the marches when police used teargas, water cannons and live bullets to disperse the crowds.
Is Ruto’s hold on power under threat?
It’s hard to tell. The answer will likely hinge on the credibility of the new cabinet. In the current lineup of 19 ministers approved by parliament, 10 are from Ruto’s previous cabinet, four are new faces from the private sector, and five are allies of opposition leader Raila Odinga, who was Kenya’s prime minister from 2008 to 2013.
The Odinga-allied ministers represent large ethnic communities that are Ruto’s biggest critics, and their appointment was seen as a move to placate those groups. That has been criticized by the young, urban and mainly educated protesters — who’ve denounced the history of ethnic tensions in Kenya and refer to themselves as tribe-less. Ruto’s reappointment of dismissed cabinet members also has been greeted negatively by the public.
Ruto retains a tight hold on the ruling party and an internal revolt is unlikely. However, 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.
How will the scrapping of the new taxes affect the government’s finances?
The Treasury had envisioned that the new levies would generate an additional 344.3 billion shillings ($2.7 billion) in the financial year through June 2025. It now sees a budget deficit of 4.2% of gross domestic product in 2024-25, compared with an earlier estimate of 3.3%. The nation’s sovereign rating has also been downgraded deeper into junk by two firms: Fitch Ratings and Moody’s cut Kenya’s rating by one notch to B- and Caa1 respectively, citing the nation’s dwindling ability to raise revenue after it scrapped the tax plan.
How does the IMF fit in?
Kenya agreed to an economic reform program with the IMF in 2021 and, in exchange for funding, committed to reducing the budget deficit, increasing tax collection, and curbing wasteful government spending. The IMF-supported program aims to help Kenya reduce its debt vulnerabilities and strengthen its ability to align spending with revenue. 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.
With the existing package ending in April 2025, Kenya plans to seek a new IMF program to address its debt which is classified as being 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 Advisors. That excludes annual interest of about $1.5 billion. Kenya’s debt equates to the equivalent of two thirds of GDP.
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