Economists cautiously hopeful Ruto’s bold move can spur growth-friendly reforms

Until Thursday’s bold move by President William Ruto, few people, if any, seemed to like a hugely unpopular finance bill that was going to raise more money in taxes.

But that quickly changed following an appalling decision by Ruto to dissolve his cabinet in its entirety, retaining the Prime Cabinet Secretary and the Deputy President.

“I have decided to dismiss with immediate effect all cabinet secretaries and attorney general (AG) of the Cabinet of Kenya except the Prime Cabinet Secretary and Cabinet Secretary for Foreign Affairs,” said Ruto at Statehouse yesterday. “And of course, the office of the Deputy President is not affected in any way.”

It is a move that caught many by surprise and one that is now being hailed by economists, individuals and business owners alike.

Indeed, economists keenly following the new developments are optimistic Ruto’s promise to form a new unity government can deliver stable economic policies to revive growth, but are cautious about how the awaited new cabinet can reconcile stark ideological differences.

“It is a bold decision, a big one but we have to wait and see how the new cabinet will try to undo some of the economic challenges faced by the country today,” said Peter Macharia – the CEO of digital lending firm, Jijenge Credit limited.

“What investors and majority of Kenyans want is more focus on promoting local production and predictable tax policies as well as leveraging in as much private investment as possible to create an attractive investment for more capital and to support the ambitions of this Government,” said Macharia.

Wider economic developments will however also be a factor, according to Macharia who believes the president should unite the country and focus on rapid, inclusive and sustainable economic growth, the promotion of fixed capital investment and job creation for the agitating youth.

Adding that, interest rates have remained elevated as the Central Bank of Kenya (CBK) has battled high inflation following a tough 2023 and the lingering consequence of the Covid-19 slowdown, and that the new move will likely have different consequences for the investing environment.

The same sentiments were shared by Alice Mukami – a realtor in Nairobi who is also calling for land reforms.

“Some housebuilding stocks may also see a boost due to this move and with the plans by the government to build new, affordable homes for its citizens. But land reforms will be crucial as well as the general cost of construction which must be addressed,” said Mukami.

The now subsiding protests that had engulfed the country in the last three weeks, was the introduction of a new finance bill that would levy punishing taxes on everyday essentials, including sugar, bread, and cooking oil—a policy that would hit poor Kenyans particularly hard.

The same bill – which has since been dropped following public uproar, had also set aside vast sums for the renovation of the president’s residence and other extravagant expenditures.

It was a move that enraged a new generation of Kenyans – or Generation Z and a host of millennials, many of whom voted for President Ruto just two years ago when he said he would create a million new jobs but now feel that the promises made to them are being betrayed and their futures are being stolen.

The extra taxes were supposed to raise about Sh350bn Kenyan shillings, while about 600bn was going to be borrowed.

According to the president, the proposed tax measures were part of efforts to cut the debt burden of over $80bn (Sh10.3trillion). About 60% of Kenya’s collected revenues goes to servicing debt.

“I have been working very hard to pull Kenya out of a debt trap... It is easy for us, as a country, to say: “Let us reject the finance bill.” That is fine. And I have graciously said we will drop the finance bill, but it will have huge consequences,” the president said while speaking to journalists at the State House over a week ago.