Ruto wins

Kenya Kwanza supporters celebrate in Eldoret town streets, Uasin Gishu County after William Ruto was declared President-Elect by the Independent Electoral and Boundaries Commission Chairman Wafula Chebukati on August 15, 2022.

| Jared Nyataya | Nation Media Group

Not the plan: The unintended consequences of the Ruto policies

The Kenya Kwanza administration has come up with a raft of policies whose results have been mixed, just 14 months in office.

President William Ruto’s government is racing to extend relief to a public that is rapidly becoming disillusioned.

The implementation of the Kenya Kwanza manifesto, which articulates the Bottom-Up Economic Transformation Agenda anchored on five pillars – agriculture, Micro, Small and Medium Enterprise economy, housing and settlement, Healthcare as well as Digital Superhighway and Creative Economy – is on.

To its credit, the administration has cleared the backlog of arrears owed to devolved governments, resolved confusion over the education system, hired 56, 000 teachers, allocated Sh12 billion for subsidised fertiliser and rolled out the Hustler Fund.

However, priority targets like bringing the cost of living down, eradicating hunger, creating jobs, expanding the tax base and improving foreign exchange balance, face hurdles.

The problems have persisted, some actually growing worse. Inflation has risen for the second month in a row, hitting 6.92 per cent in October.

Millions of people face hunger, unemployment has hit a new level while Kenya’s foreign exchange reserves are getting diminished by debt settlement and huge import bills.

Some of the policies actually contradict the campaign manifesto.

The President has gone strong on increasing taxes and bringing in more taxpayers into the system.

His interventions include introducing a mandatory 1.5 per cent housing levy on the gross monthly pay of workers and doubling Value Added Tax (VAT) on fuel to 16 per cent.

In addition to the high global prices and the depreciation of the shilling, taxes have pushed fuel prices to a record high. Many people have ditched their cars in favour of public transport, leading to subdued fuel consumption.

According to the Kenya Revenue Authority (KRA), collection from fuel recorded a deficit of Sh12.9 billion and a decline of 8.6 per cent over the July-September 2023 period.

KRA Commissioner-General, Humphrey Wattanga, told the National Assembly Finance Committee that the tax category performance was affected by a decline in overall oil volumes by 12.4 per cent, attributed to a drop in fuel consumption from January to June this year.

“Various economic parameters have deviated from expectation,” Mr Wattanga told the team chaired by Molo MP Kuria Kimani.

Public debt

The borrowing spree the Kenya Kwanza administration has carried on with is in stark contrast to its manifesto.

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“The saying goes that when in a hole, one should stop digging. Kenya Kwanza is alive to this counsel,” part of the manifesto says regarding the country’s debt.

Dr Ruto took office when Kenya’s debt had was Sh8.7 trillion, even as he inherited a deficit of Sh759.66 billion to finance his predecessor Uhuru Kenyatta’s budget for the 2022/23 financial year.

By August 2023, Kenya’s debt had grown to Sh10.52 trillion, according to the Central Bank of Kenya (CBK), translating to borrowing Sh1.82 trillion in less than a year.

Parliament has amended the debt ceiling from Sh10 trillion to an anchor set at 55 per cent of the GDP. With a deficit of Sh634.1 billion in the 2023/24 financial year, the loans are poised to shoot past the Sh11 trillion mark by June 2024.

Despite the tight fiscal framework, Treasury has raised spending for the current fiscal year by Sh187.3 billion, taking total spending to a record Sh3.93 trillion, up from the initial estimates of Sh3.74 trillion in June.

Treasury Cabinet Secretary, Njuguna Ndung’u, says the borrowing is necessary as it helps address the biting cash crunch.

Price board with new fuel prices

A petrol station attendant in Nakuru electronically adjusts the price board with new fuel prices on October 15. Many car owners have opted for matatus and buses as petrol prices shoot up. 

Photo credit: Boniface Mwangi | Nation Media Group

Prof Ndung’u says Kenya’s case is worsened by the upcoming Eurobond maturity as it is causing jitters in the foreign exchange market.

It is also due to heavy short-term debt maturities issued for a long time before the 2022 General Election, he says.

According to the CS, while countries in frontier markets like Kenya face the same problems regarding liquidity, the country is utilising long-term concessional financing to return to the right track.

“These two challenges will be addressed over time. The liquidity crisis will be behind us,” he said.

“Bilateral interventions and regional development finance institutions will provide support.”

Dr Ruto’s economic adviser, David Ndii, blames Mr Kenyatta for what the country is going through.

Kenya is preparing to pay the 10-year $2 billion (Sh302 billion) Eurobond in June 2024. The amount was borrowed in 2014.

“Uhuru Kenyatta’s debt legacy nightmare. A trillion domestic redemption in 2023. It’s a miracle we’ve not defaulted. Foreign redemptions double in 2024. If US rates don’t ease for markets to open for frontier’s a wing and a prayer,” Dr Ndii posted on X last week.

Barely three months after Kenya Kwanza took power, the Cabinet approved a plan to lower the cost of living by using the Kenya National Trading Corporation (KNTC) to import duty-free rice, cooking oil, sugar, wheat and beans.

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KNTC was handed credit of Sh24 billion from KCB to facilitate the plan. Unfortunately, it has not worked out as intended as the cheap goods aren’t common at supermarkets.

The cost of living remains high, even as the plan has caught the attention of the Ethics and Anti-Corruption Commission (EACC) regarding Sh22 billion worth of contracts.

Nine firms were awarded contracts to ship in rice, beans, cooking oil and fertiliser without going through competitive bidding.

Recently, Uganda said it would stop buying fuel through Kenya-based oil marketing companies (OMCs).

Kenya in March ditched the Open Tender System that had been in use for importing fuel for nearly a decade in favour of direct procurement under a government-to-government deal with Saudi Arabia and the United Arab Emirates.

The Uganda National Oil Company (UNOC) will in the new arrangement be buying the country’s entire fuel stock from Vitol Bahrain EC.

“UNOC and Vitol Bahrain EC have negotiated a five-year contract. The partner will be financing the business by providing working capital backed by its global balance sheet and working with UNOC to ensure competitive pricing of petroleum products,” the Ugandan government said in a statement.

Kenya’s OMCs have been supplying 90 per cent of Uganda’s petroleum product needs. The decision by Uganda means loss of thousands of jobs locally and a reduction of revenue.

Uganda has also sidestepped Kenya and picked Tanzania to host buffer fuel stocks on its behalf.

In its manifesto, Kenya Kwanza acknowledges that “tax is a major factor in the high cost of petroleum products”. However, the tax cuts to reduce costs have not been effected.

Hustler Fund was one of Dr Ruto’s biggest campaign pledges. He committed to inject Sh50 billion into the Fund every year in an effort to support micro, small and medium-sized enterprises with cheap loans.

The President launched the Fund in November last year, with Kenyans rushing to take the collateral-free loans. A year later, the Fund faces a default rate of 29 per cent, throwing into question its sustainability.

Despite the promise to inject Sh50 billion into the Fund annually, it was allocated Sh20 billion in the 2022/23 financial year, and was reduced to Sh10 billion in the 2023/24 year.

Treasury has further slashed the allocation to Sh5 billion in the first supplementary budget.

“The cost of joining a boarding secondary school is now Sh80,000 which even for ordinary working Kenyans is a sacrifice,” the manifesto says.

Kenya Kwanza promised to address “the inequities in our education system so as to level the playing field for all”.

However, the proposal to raise fees in extra-county schools will make access even more difficult.

The new university funding model has also faced criticism from many quarters. Fee for some courses has shot up exponentially.

In April, the Energy and Petroleum Regulatory Authority (Epra) increased electricity prices by up to 63 per cent.

Yet Dr Ruto had pledged to reduce the cost of electricity and delink government development initiatives from Kenya Power. The new tariffs will be in use for the next three years.

Economists say reducing taxes and lowering interest rates are the twin interventions that could have the biggest and immediate impact on turning around wastage in the economy.