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High cost of living, record debt to cut short new Kenyan president’s honeymoon
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.
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.
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.
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.
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.”
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.
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.
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.
Source: www.theeastafrican.co.ke