(Bloomberg) — Lawmakers join the president William Ruto overwhelmingly agreed to maintain controversial budget measures to raise as much as $2.4 billion, even as police shut down the national assembly on Thursday to keep anti-tax protesters at bay.
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More than 200 MPs supported the so-called Finance Bill, while 115 opposed the proposals, National Assembly Speaker Moses Wetang’ula said in a live broadcast of the proceedings. The bill will undergo a third vote before becoming law, the speaker said.
After street protests kicked off in the capital Nairobi on Tuesday, the government agreed to abolish, among other things, a value-added tax on bread, a wealth tax on motor vehicles and duties on imported wheelchair tires, which have enraged Kenyans .
But the National Ministry warned that withdrawing the controversial measures risks leaving a 200 billion shillings ($1.6 billion) financing gap for a country that had to apply for an International Monetary Fund bailout in 2021.
Police fired tear gas against demonstrators in Nairobi on Thursday, while demonstrators gathered in at least 10 other major cities. The rallies are not linked to any political party and have been largely organized by young people on social media, throwing the government off guard.
The IMF program has pressured Kenya to increase tax collections and implement painful budget reforms to unlock more financing. Kenya’s public debt is about two-thirds of GDP and is considered to be at high risk of problems.
Should lawmakers agree to abolish taxes, the move would have to be accompanied by cuts across the board to stay within budget laws, Finance Minister Njuguna Ndung’u said in a letter to lawmakers on Wednesday.
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But the protesters are not satisfied. They want the government to abandon its entire plan to impose 302 billion shillings in new taxes, which will put pressure on middle and lower class citizens while also exciting international investors.
“More borrowing seems inevitable” and Kenya may be pushed back into international capital markets, said David Omojomolo, Africa economist at Capital Economics Ltd. This will be “difficult given that yields are still quite expensive and there are concerns about the short-term sustainability of Kenya’s budgets. didn’t leave,” he said.
The controversial budget is Ruto’s second since coming to power in 2022. The budget for the year starting July is a record revenue of 2.92 trillion shillings.
The country will finance a deficit of 3.3% of gross domestic product – a significant drop from 5.7% in the current budget period – through both foreign and domestic borrowing.
The Kenyan currency was little changed when trading closed in Nairobi. The yield on Eurobonds maturing in 2028 rose by 34 basis points to 10.05%. Bonds maturing in 2032 rose 24 basis points to 10.347%.
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–With help from Eric Ombok.
(Updates with parliament vote from first paragraph.)
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