Economic challenges for Kenya’s new president

Kenya’s major macroeconomic challenges are high debt and rising inflation. It will be difficult for the new president, William Ruto, to address these whilst also implementing “Rutonomics” – his pledges to benefit the poor and boost the prospects of the country’s “hustler nation”, write Dr Desné Masie and Angus Chapman.

Economic concerns dominated the 2022 election, but it is not clear how the headline macroeconomic challenges can be addressed.

Much of Kenya’s inflation has been imported from abroad, while Ruto’s refusal to restructure Kenya’s external debt leaves him dependent on tax revenue and spending reduction to meet repayments.

His pledges – especially those related to universal health, education and social security – will boost productivity over time if effectively implemented, but they will be expensive. Tax rises to pay for them are likely to antagonise his supporters, and run counter to his manifesto.

Ruto played strongly to Kenya’s agricultural heartland, as well as the enormous network of informal MSMEs, and plans to use these sectors to greatly expand the economy as part of a bottom-up economic model.

Ruto has pledged to grant a trading licence and location to anybody who requests one, as well as create a $420m per annum “hustler fund” to extend affordable credit to MSMEs. He has also pledged to cut agricultural imports by 30%, raising the productivity of the sector through new capital and financial management instruments.

If successful, these pledges could provide substantial relief from poverty and insecurity, though the prevailing severe drought, unreliable institutions and international economic volatility present significant headwinds.

Ruto’s win is exciting for the most vulnerable in Kenyan society, but if he fails to deliver on his manifesto political trust may be difficult to win back and cause social unrest in the medium term.

This is an abridged version of “Rutonomics: Now the hard work begins” published by IC Intelligence and available via https://bit. ly/3DiQtyu