The violent unrest that forced Kenya’s president to withdraw support for a finance bill has left the country’s efforts to meet International Monetary Fund (IMF) targets in doubt and could make borrowing more costly, investors and analysts said. The bill included unpopular levies on bread, vegetable oil, sugar, mobile money transfers, and some imports.
The finance bill, which faced significant public opposition, was designed to generate an additional 346 billion Kenyan shillings ($2.68 billion), equivalent to 3% of the country’s GDP. This revenue was crucial for Kenya’s plans to meet its fiscal targets set by the IMF, as noted by Morgan Stanley’s analyst Neville Z. Mandimika in a recent report.
The withdrawal of the finance bill has cast uncertainty over Kenya’s ability to secure further financial assistance from the IMF. Without the additional revenue measures, the government may struggle to meet the fiscal consolidation goals required under the current IMF program. This uncertainty has raised concerns among investors about Kenya’s fiscal stability and its ability to service existing debts.
The political and social turmoil surrounding the finance bill also poses a risk to Kenya’s borrowing costs. Investors may demand higher yields on Kenyan bonds to compensate for the increased risk, leading to higher borrowing costs for the government. This scenario could exacerbate Kenya’s debt situation, making it more challenging to manage and repay its obligations.
The Kenyan government is now faced with the task of finding alternative revenue sources or making significant spending cuts to align with IMF requirements. The situation highlights the delicate balance between implementing necessary fiscal reforms and maintaining public support, especially in a challenging economic environment marked by high inflation and slow growth.
The turmoil surrounding the finance bill withdrawal has significant implications for Kenya’s fiscal policy and financial stability. The government’s next steps will be closely watched by both domestic and international stakeholders, as they will determine the country’s ability to navigate this challenging period and maintain economic progress.
