Folks stroll past a scorched shopping center, torched during protests against Kenya’s proposed finance bill, in Nairobi on June 28, 2024.
JOHANNESBURG — “Kenya ain’t IMF’s guinea pig,” read one of the many placards lambasting the International Monetary Fund at protests over tax hikes in Kenya.
Stoked by savvy youth on social platforms, protests erupted over the government’s plan to hike taxes to manage its colossal debt.
The government backtracked after a deadly Tuesday, where protesters breached Parliament, and police responded with deadly force, killing over twenty, according to rights groups.
Besieged President William Ruto announced he’s shelving the controversial finance bill, vowing to pursue budget cuts and austerity to stabilize Kenya’s finances.
But chaos in one of Africa’s major economies, a key U.S. ally, sparks questions about the debt strangling many developing nations, and who’s responsible.
Global lenders
Kenya’s debt is a staggering $80 billion, both domestic and foreign, making up 68 percent of its GDP, far outstripping the World Bank and IMF’s recommended cap of 55 percent.
Ruto’s unpopularity hinged on tax hikes meant to stave off default, an effort following a recent agreement with the IMF on extensive reforms.
Most of Kenya’s debt lies with international bondholders, with China being its largest bilateral creditor at $5.7 billion.
Washington often accuses Beijing of “debt trap diplomacy” — predatory lending that indebts developing nations. China, driving large-scale projects across Africa under President Xi Jinping’s global Belt and Road Initiative, denies the allegations fiercely.
Opinions vary on whether China or Western financial bodies are to blame for Kenya’s troubles, as it owes billions to both.
“The fundamental issue lies in the absence of an effective global financial safety net,” said Kevin P. Gallagher, director of Boston University’s Global Development Policy Center.
“IMF and World Bank programs exacerbated rather than ameliorated the situation, while the G20’s debt restructuring framework seemed too risky for Kenya,” he noted.
China’s involvement
Gallagher’s data indicate China’s loans to Kenya decreased recently, suggesting minimal impact on Kenya’s debt crisis.
“Kenya’s situation debunks the ‘debt-trap diplomacy’ claims against China. If this was the case, China would seize Kenyan assets, yet it remains the most patient lender,” Gallagher told VOA.
Former U.S. diplomat David Shinn opined the blame couldn’t be pinned squarely on one entity.
“China is Kenya’s largest bilateral lender, but its loans pale compared to international financial bodies and Eurobond holders,” Shinn told VOA.
“All these entities share culpability for Kenya’s excessive debt. The Kenyan government overburdened itself, and lenders were imprudent,” he continued.
Chatham House’s Africa Program director Alex Vines added, “China contributes to the debt burden, but private equity also plays a role.”
Kenya-based economist Aly-Khan Satchu described Kenya as in a “perfect debt storm.”
“Kenya’s political scene gives you whiplash, swinging between Eastern and Western influences. A pivotal decision aims to pull Kenya away from China, leaning on the World Bank and IMF,” Satchu stated.
Yet, Satchu noted, Kenya had to divert IMF and World Bank funds to pay its considerable debt to China, notably for a China-built railway.
Columbia University’s Harry Verhoeven said neither China nor the IMF alone are at fault for Kenya’s troubles.
“The IMF is right about undercut revenue generation, but has been reticent on how the revenue should be raised or its distributive effects,” Verhoeven mentioned.
Additional challenges
Analysts underscore that loans aren’t the sole villains here. Kenya took a hit from COVID-19, the fallout from Russia’s war on Ukraine, including soaring food and energy costs. Climate change-induced floods also wreaked havoc.
Economics lecturer Samuel Misati Nyandemo from the University of Nairobi mentioned the government now faces a stringent task without the finance bill.
“Balancing revenue generation with addressing living costs and business expenses amidst corruption, impunity, and wastefulness is critical,” he stated.
Nyandemo forewarned Kenya might not be the last African nation where public anger boils over.
In a fiery April speech, U.N. Secretary-General Antonio Guterres remarked, “The world cannot keep turning developing nations’ futures into a blazing debt inferno.”
He highlighted that around 40% of the world’s populace resides in countries spending more on interest than health or education.
