• Wednesday, July 24, 2024
businessday logo

BusinessDay

Kenya will be in more debt if taxes are not raised says Ruto

William Ruto

William Ruto, the president of Kenya has said the country will be in more debts following the rejection of a finance bill that was going to raise more money in taxes.

The president had said he would withdraw the bill containing controversial tax hikes last Wednesday after deadly protests which saw parliament set on fire.

But on Sunday he said dropping the bill would set the country back two years, as he explained the difficulty of being unable to raise extra taxes while facing a huge debt burden.

“I have been working very hard to pull Kenya out of a debt trap… It is easy for us, as a country, to say: ‘Let us reject the finance bill.’ That is fine. And I have graciously said we will drop the finance bill, but it will have huge consequences,” the president said while speaking to journalists on Sunday night.

Read also: Kenya& Ruto withdraws controversial tax bill amid protests

Ruto said this meant Kenya would have to borrow one trillion shillings ($7.6bn; £6.1bn) just “to be able to run our government”.

This is a 67% increase on what had been planned.

The 57-year-old also said he was considering cuts in spending across government, including in his own office, as well as reducing allocations to the judiciary and the county governments.

Protesters want the government to abandon the planned tax hikes, which they argue will choke the economy and raise the cost of living for Kenyans who are already struggling to make ends meet.
The extra taxes were supposed to raise about 350bn Kenyan shillings, while about 600bn was going to be borrowed.

According to the president, the proposed tax measures were part of efforts to cut the debt burden of over $80bn (£63bn). About 60% of Kenya’s collected revenues goes to servicing debt.

Ruto said the rejection of the budget would affect the employment of 46,000 junior secondary school teachers who have been on temporary contracts, as well as healthcare provision.

Read also: Kenyan protesters promise more rallies after at least 23 die in clashes

He said the government would be unable to support dairy, sugarcane and coffee farmers, including by paying off debts owed by their factories and cooperative societies as had been planned.

What is a Finance bill

A finance bill is usually presented to parliament before the start of a financial year that runs from July to June, laying out the government’s fiscal plans.

In the 2024/25 bill, the Kenyan government aims to raise $2.7 billion in additional taxes to reduce the budget deficit and state borrowing. Kenya’s public debt stands at 68% of GDP, higher than the 55% of GDP recommended by the World Bank and the International Monetary Fund.

Grappling with acute liquidity challenges amid uncertainty over its ability to access capital from financial markets, Kenya has turned to the IMF – which has urged the government to meet revenue targets to access more funding.