Kenyan Lawmakers Double Down on Taxes Despite Street Protests

(Bloomberg) -- Lawmakers aligned to President William Ruto overwhelmingly agreed to keep controversial budget measures to raise as much as $2.4 billion even as police sealed off the national assembly on Thursday to keep anti-tax demonstrators away.

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More than 200 members of parliament supported the so-called Finance Bill, while 115 opposed the proposals, National Assembly speaker Moses Wetang’ula said in a live broadcast of proceedings. The bill will undergo a third vote to become law, the speaker said.

After street protests kicked off on Tuesday in the capital, Nairobi, the government agreed to drop, among others, a value-added tax on bread, a wealth levy on motor vehicles and duties on imported wheelchair tires that have infuriated Kenyans.

But the National Treasury warned that withdrawing the controversial measures risks creating a 200 billion-shilling ($1.6 billion) financing hole for a nation that in 2021 had to seek a bailout from the International Monetary Fund.

Police deployed teargas at protesters in Nairobi Thursday, while demonstrators massed in at least 10 other major towns. The rallies are not linked to any political party, and have been organized largely by young people on social media, catching the government off guard.

The IMF program has put Kenya under pressure to increase tax collections and implement painful fiscal reforms in order to unlock more funding. Kenya’s debt is about two-thirds of GDP and is considered at high risk of distress.

Should the lawmakers agree to scrap the taxes, the move would have to be accompanied with spending cuts across the board in order to remain within budget-making laws, Treasury Secretary Njuguna Ndung’u said in a letter sent to lawmakers Wednesday.

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But protesters aren’t satisfied. They want the government to throw out its entire plan to raise 302 billion shillings in new taxes, which is squeezing middle- and lower-class citizens even as it thrills international investors.

“More borrowing appears inevitable” and Kenya may be forced back to international capital markets, according to David Omojomolo, Africa economist at Capital Economics Ltd. That will be “tricky given yields are still quite expensive and concerns about Kenya’s fiscal sustainability beyond the near term have not gone away,” he said.

The contentious budget is Ruto’s second since taking office in 2022. It projects revenue at a record 2.92 trillion shillings for the year beginning July.

The nation will finance a shortfall equivalent to 3.3% of gross domestic product — a significant drop from 5.7% in the current fiscal period — through both foreign and domestic borrowing.

Kenya’s currency was little changed by close of trading in Nairobi. The yield on eurobonds due 2028 rose 34 basis points to 10.05%. Those maturing in 2032 gained 24 basis points to 10.347%.

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--With assistance from Eric Ombok.

(Updates with parliament’s vote from first paragraph.)

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