Kenya’s National Treasury has cautioned that suspending contentious tax measures could result in a 200 billion shilling ($1.6 billion) funding shortfall. This comes as the country seeks financial assistance from the International Monetary Fund (IMF).
The Finance Bill 2024, which proposes increased taxes and levies, has ignited widespread protests since its introduction in parliament in May. In response to violent demonstrations in major cities, Kenyan authorities have promised to remove several taxes, including the value-added tax on bread and a wealth levy on motor vehicles.
Treasury Secretary Njuguna Ndung’u, in a letter to lawmakers, emphasized that any amendments to these measures and proposed spending cuts must comply with budgetary laws. However, protestors remain unsatisfied, demanding the complete withdrawal of the government’s plan to raise 302 billion shillings through new taxes. They have vowed to extend their protests to eight more towns on Thursday.
As part of its agreement with the IMF, Kenya is committed to enhancing tax revenues and has secured a preliminary agreement for additional funding, contingent on implementing fiscal reforms. David Omojomolo, Africa economist at Capital Economics Ltd., noted that increased borrowing seems inevitable. He pointed out that returning to international capital markets could be challenging due to high yields and ongoing concerns about Kenya’s long-term fiscal sustainability.
President William Ruto’s second budget since taking office in 2022 projects record revenue of 2.92 trillion shillings for the fiscal year beginning in July. To address a financing gap of 3.3% of gross domestic product (GDP), down from 5.7% in the current fiscal period, the government plans to rely on a combination of foreign and domestic borrowing.
