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On June 25, crowning a dramatic, nationwide tax revolt, demonstrators in Nairobi stormed Kenya’s parliament buildings. President William Ruto’s new finance bill, introduced in Parliament in May, sought to increase levies on everything from bread and money transfers to sanitary items and cellular data. In response, the “Gen-Z” generation that has been criticized for not being politically active took it upon themselves to organize on TikTok and mobilize in the streets.
The public mood was souring even before the social explosion. Last year, Kenyans reported the second highest share of people struggling to eat globally, and the highest share of people fearing political unrest that would lead to violence. Public services have deteriorated rapidly with hospitals virtually empty, running out of essential medicines, and doctors striking for pay and better funded facilities. Since mid-2021, Kenya has spent twice as much on interest payments as on health. Joblessness is rising.
Kenya is not alone in its crisis. The majority of the world’s governments have undertaken austerity policies, under either direct IMF pressure or the indirect discipline of other creditors. Last spring, we warned that such moves would cause societies to boil. According to the World Bank, three in five low-income countries are now at risk of, or are already in, debt distress. No less than twenty-one sub-saharan African countries are in an IMF program. Eighteen countries defaulted between 2021 and 2023, but balance sheet calamities rarely get the attention of the international media—until social crises, dramatic protests, and violent repression break through.
The cure to debt distress is not regressive taxation. On June 13, Budget Day in Kenya, protestors disrupted parliament in an effort to halt the new bill. “We cannot continue to be ruled like this; by sick people. By mad people. Liars and thieves and criminals,” said the activist Julius Kamau.
As the protests gained momentum, Ruto’s government responded violently, deploying the military to protect the parliament. The military shot live rounds, killing 39 people and injuring hundreds, according to the Kenya National Human Rights Commission. After initially blaming the violence on “criminals” who had “hijacked” the protests, and facing a snowballing legitimacy crisis, Ruto gave in to protestors’ demands and withdrew the finance bill. (And this week, Ruto’s response has continued: to allay corruption concerns, he dissolved forty-seven state agencies and cut budgets for foreign junkets.)
Legitimacy matters to Ruto because he portrays himself as an anti-establishment figure, criticising previous Kenyan government “dynasties” for excessive borrowing, and using subsidies to pander to ethnic groups while delivering poor public services. Hence the sense of betrayal from Ruto’s base of countless unemployed and underemployed young voters in the so-called “Hustler movement,” who have, writes the political scientist Ken Opalo, developed “unprecedented levels of public interest in the minutiae of economic policymaking over the last two years.”
As with many other countries in 2024, Kenya’s predicament can be traced to the unjust financial architecture, Covid-era shocks to the credit, food, and energy markets, interest rate hikes by Western central banks, and climate-fueled disasters. (In the last four years, the country has been hit by devastating drought, floods, and even locust swarms.) None of these are within the control of the Kenyan government—which is not to say that poor governance and corruption has not contributed to the crisis.
At the Summit for a New Global Financing Pact in Paris last summer, President Ruto had bluntly told assembled heads of states that a new financial architecture must be created so that “governance and power is not in the hands of a few.” Ruto’s diplomatic efforts were frenetic over the course of the following year. Despite making sixty-two visits to thirty-eight countries, he was nonetheless unsuccessful in getting concessional finance or debt relief. The international financial system remains extractive, with money gushing out of poor countries into the coffers of the wealthiest. To a large extent, it was this fact that laid the ground for Ruto’s austerity.
Ruto’s attempts to solve the crisis
Since becoming president in September 2022, Ruto has achieved something few leaders of poor countries have managed. He has been granted an audience with G7 heads of state, feted on a US state visit, and received airtime in the elite international media for something other than war, corruption, and crisis.
Like Barbados’s Prime Minister Mia Mottley in her Bridgetown Agenda, Ruto has been advocating for financial justice, climate action, and strategic agency for poor nations. His calls for global tax reforms led to the formation of a French-Kenyan-Barbadian taskforce that is exploring all options. The “Nairobi–Washington Vision,” released as part of Ruto’s state visit to Washington in May, sets out an agenda for international financial institutions to create coordinated packages of support so that “high ambition countries don’t have to choose between servicing their debts and making necessary investments in their futures.”
Through all this, Kenya has been under acute liquidity pressure. Lenders had for some time been anticipating how Kenya would repay the principal of a ten-year, $2 billion eurobond that matured in June. With the Kenyan shilling under pressure, the country scrambled to retire the bond early, using proceeds of a $1.2 billion World Bank facility and issuing a new $1.5 billion bond—essentially punting these repayments to a future date.
But the immediate driver of Kenya’s austerity program is its need for several hundred million dollars on top of the almost $4 billion already extended to it by the IMF. In return, the IMF is demanding that Kenya repay its debts. This will mean selling state assets and state-owned companies. In October last year, the Kenyan Treasury was empowered through a change of legislation to sell state-owned enterprises without seeking approval from Parliament. Eleven state-owned enterprises have already been privatized and stakes have been sold in another thirty-five public firms through the Nairobi securities exchange. Those on the auctioneer’s block included the public national oil corporation (NOCK), pipeline company (KPC), machining company (NMC), vehicle manufacturing company (KVM), seed company (KSC), rice milling companies (MRM and WKRM), milk company (NKCC), and the textile company (REAL).
Could Kenya default?
Now that increasing revenues from taxes has been taken off the table, cuts to government spending will be even harsher. Debtor countries are forced to make terrible choices between debt payments and food provision, energy and social services. They often prioritize debt payments so as not to risk the ire of creditors, and to retain the existentially important ability to raise US dollar-denominated debt from global bond markets.
The IMF just last week included Kenya in a list of sub-Saharan African countries that had issued bonds for the first time since the Covid pandemic, “signalling investor confidence that those countries can repay their debts.” But as the African Sovereign Debt Justice Network noted earlier this year, it is a perversity to see these bond issuances as a sign of a country’s healthy position in the global financial system, while ignoring the exorbitant interest rates demanded by bond investors. Kenya’s new bond issued in March has an interest rate of 10.375 percent—vastly higher than the 6.875 percent ten-year bond that it helped to replace.
Repaying debts at all costs or simply defaulting are not, however, the only options available to countries in Kenya’s situation. Brad Setser noted that markets were expecting a restructuring of Kenya’s debt—that is, negotiating an adjustment to the terms of repayment. Sovereign bonds are governed under New York State law and debt justice campaigns have advocated for legislation to bring private creditors to the bargaining table.
Kenyan officials were seeking some form of debt relief in talks with IMF and World Bank counterparts at last year’s Spring Meetings. The IMF, critical to pursuing any restructuring, has urged the Kenyan government to stay the course with austerity measures. “The authorities should be resolute in their actions to help keep confidence anchored,” it says of a plan to cut the debt-to-GDP ratio to 55 percent by 2029 (it has recently hovered around the mid to high 60 percent level).
Few countries pursuing strict debt reduction goals have escaped social and political upheaval. A Brookings Institute paper by Janice C. Eberly, Barry Eichengreen, et al identified Jamaica as one of the very few countries to steadily and dramatically cut its sovereign debt to GDP ratio without domestic turmoil. Key to its success was the consultation between sectors: “democratic corporatism” and its “social partnerships” between civil society, unions, and so on, that were developed over decades following the horrifically violent 1979 elections. Achieving this kind of coordination is slow work, and the paper’s authors propose that being a small country helps: only Ireland, Iceland, and Barbados have had similar success. Kenya, on the other hand, is home to fifty-six million inhabitants and is the economic, logistical, and financial hub for all of East Africa. There is no instruction manual for reducing its sovereign debt.
A Nairobi-Washington vision?
When the protests in Nairobi were met with deadly force, there was a sense of awkwardness for the Biden administration, which had just days before designated Kenya a “major non-NATO ally”—the first in Sub-Saharan Africa—a relationship expressed in the deployment of 400 Kenyan troops to “restore peace” in Haiti and stepped up joint operations against Al-Shabaab insurgents in Somalia.
Ruto’s Washington visit last month advanced green “technological cooperation” with the US. The idea is for the US to facilitate investments in Kenya’s green growth agenda—data centers, geothermal electricity, electric two wheelers, green fertilizers—that Ruto launched as a “African Green Investment Initiative” at COP28 with $4.5 billion from UAE. The West, as we anticipated, has effectively outsourced funding of the energy transition to Gulf Kingdoms that are flush with oil cash, having already left an increasing portion of development funding up to China and private capital in the decade or so prior.
The Emiratis want to turn Kenya into the center of technological innovation on the continent. The US and UAE have together gotten Microsoft and UAE-based tech firm G42 to invest $1 billion in a geothermal-powered AI data center campus in the Great Rift Valley. Kenya is thus a beneficiary of the US-China chips war: To make the deal happen, the Biden administration approved Microsoft-G42 use of cutting edge NVIDIA AI chips in exchange for G42 agreeing to cut ties with Chinese companies like Huawei.
It is good for Southern elites to win such technology investments. But while the New Washington Consensus delivers full employment and trillions in deficit-financed welfarism and public investments in the North, the Nairobi-Washington vision for which Ruto is a stand-in is insufficient for fostering prosperity across the South—where debt-stressed countries with soaring joblessness are imposing class war austerity and privatization, amid Western intransigence in delivering touted financial architecture reforms.
The Polycrisis is a publication focusing on macro-economics, energy security & geopolitics.
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