President William Ruto is a cornered man.
Elected on the populist Bottom-UP economic agenda that assured an easy life for those at the bottom of the economic pyramid, the Kenya Kwanza government has in the past year come to face with a reality that is slowly turning into pain for Wanjiku.
In this edition, the Star talked to several social economic experts who are divided on which way Ruto's government can realistically deliver on its many promises.
"The truth is that the country has a high debt obligation. The current global financial turmoil, supply chain disruptions that started with Covid-19 and ongoing geopolitics have spoiled the part for Ruto. He had to make tough decisions,'' Economist Tom Walaba told the Star.
He adds that as much as the government would like to lower the costs of living and doing business, realities on the ground dictate otherwise, hence the current tough tax regime.
President Ruto assented to the Finance Act on June 26 that among other things, doubled the Value Added Tax on fuel products to 16 per cent, raised tax bands for high earners and introduced a housing fund that targets 1.5 per cent of employees' salaries to be matched by their employers.
Early this week, the High Court suspended an earlier judgment that found the Housing Fund unconstitutional. However, the government requested that the decision be suspended for 45 days to allow it to come up with a way forward.
Besides, the government has intensified domestic revenue collection measures, pushing compulsory monthly statutory deductions for employees to at least 20.5 per cent from those earning Sh50,000 and above.
This means the government takes Sh10,250 from every employee earning Sh50,000 every month.
"The high tax regime cuts across all sectors of the economy and social classes. While businesses are decrying high operations costs, households are struggling to put a single meal on the table,'' an economist Kiio Kimeli says.
He adds that the end result is a sluggish economy and angry electorates.
Last week, the Federation of Kenya Employers (FKE) warned of impending mass job cuts if the current economic turmoil persists.
According to FKE, about 40 per cent of employers have reported that they are planning to further reduce the number of employees to meet the increasing costs of operating in Kenya.
This is in addition to the already three per cent (70,000 jobs) that have already been lost.
Speaking during a media briefing in Nairobi, FKE president Habil Olaka said the cost of doing business has become unsustainable since the enactment and implementation of the Finance Act 2023.
The latest private sector performance index agrees with FKE's sentiments, with last month's data showing that firms faced unprecedented inflationary pressures, driven by a further rise in fuel prices, high taxes and ongoing currency weakness.
This saw input costs rise at the quickest pace since the survey began nearly a decade ago, leading companies to also increase selling prices at a record rate.
Consequently, the latest data by Stanbic Bank signaled a worsening of the demand picture as heightened prices eroded spending power and led to a marked fall in new business.
The headline Purchasing Managers’ Index (PMI) dropped to 46.2 points in October compared to 47.8 points the previous month. This was the lowest performance since July.
The shilling has been falling against major international currencies, with the latest data by the National Treasury indicating an average annual drop of 20 per cent for the US dollar.
On Thursday, the shilling sneaked dropped to a new low against the US dollar to trade at 153.20 units.
On the household side, the high fuel prices, weak shilling and poor agricultural yields continue to push up the cost of living, with the average inflation for the year expected to hit a five-year high.
The annual inflation rate in Kenya unexpectedly rose to 6.8 per cent in September 2023, the first increase since May 2023, from 6.7 per cent in the prior month but still within the central bank's preferred range of 2.5 per cent to 7.5 per cent.
"The high fuel prices are a result of three things: a drop in global production that raised demand, a doubling of VAT to 16 per cent and the weak shilling. There is too little that President William Ruto can do on this,'' Kimeli said.
He adds that most of the tax measures introduced are part of the International Monetary Fund (IMF) conditionalities aimed at easing pressure on the budget.
The international lender has been pushing for more domestic resource mobilisation in the past decade as a remedy to high borrowing that has since pushed the country's public debt to Sh10.5 trillion.
President Uhuru Kenyatta was in 2018 forced to halve VAT on fuel to eight percent after the introduction of the full tax prompted protests from motorists and business lobbies.
The tax was originally included in a law passed in 2013, but was postponed several times, amid complaints about its impact.
"Kenya is cornered. We have no option but to implement the restructuring plan as they are offering caution to the current economic turmoil riddled by high debt obligation," Jackson Mutemi of IDA Capital says.
Yet the masses are up in there, castigating the president for promising heaven but delivering a mint hell.
"This government told us it is for hustlers. Today the value of Sh1,000 has grossly depreciated on the high cost of living to a mere half. I don't know what Ruto is doing in the office," William Ouko, a taxi operator in Wetslands, told the Star.
Speaking during a recent NCBA economic forum, the head of the presidential economic advisory board David Ndii said the country could have defaulted on major loans but the IMF rescued it.
He insists that it will get more painful as the government implements guidelines set by the Washington-based lender but promises economic bliss thereafter.
"It will get a bit tighter in the coming days, I won't lie to you. We are cleansing a huge mess that requires time and patience. Things will be much better in the coming days," Ndii says.
Various banking executives who foresee a recovery starting mid-next year have shared similar sentiments.
Thye sector felt the weight of a tough economy in the recently announced Q3 results where Kenyan subsidiaries weighed down net earnings from regional peers.
Loan defaults have hit a new recent high of 15 per cent, forcing banks to spend more in compensations in accordance with International Financing Reporting Standards 19.