What you need to know:
- The biggest challenge yet is how Ruto will balance populist promises he has made with the reality that is the actual state of affairs.
President William Ruto faces a mountain of hurdles in his journey to fulfil the promises he made to Kenyans. The biggest challenge yet being how he will balance populist promises he has made with the reality that is the actual state of affairs.
There is also the law and international obligations which may stand in the way of implementing his manifesto or slow the timeline in which he can implement them.
There is also the opposition Azimio la Umoja One Kenya Coalition, which has slammed Dr Ruto and his deputy Rigathi Gachagua over “road side declarations saying the country risks having an imperial president, who makes radical declarations without engaging relevant institutions”.
The President made various promises to his supporters during campaigns, some of which he committed to implement after he was sworn in on Tuesday.
The work required to implement the juicy promises, however, may not be as easy as they came since interests including budgeting for them, legal issues and government obligations will be standing in the way.
Dr Ruto, for instance, said the Central Bank of Kenya (CBK) is reviewing banking regulations to loosen scrutiny on cash transactions starting Sh1 million ($10,000) by raising the limit, to address complaints by businesses that the requirement for them to indicate source of funds and usage has caused unnecessary delays and affected their operations.
The practice, where financial institutions are required to get details on source of funds when a client is depositing or purpose when transferring or withdrawing of cash valued at least $10,000 then report to the Financial Reporting Centre (FCR), is applied internationally to help authorities detect illicit financial flows.
The promise is meant to appease his business supporters. Kenya, however, does not act alone in implementing the law, applied internationally under the United Nations Security Council’s (UNSC) anti-money laundering and combating financing of terrorism framework, to which Kenya is a signatory. The law allows authorities across the world to share information and detect movement of cash that could be used to fund terrorism or sourced from illegal activities.
Lack of CBK guidelines
Former President Uhuru Kenyatta attempted to increase the limit to Sh5 million last year, but banks have been unable to implement his order due to lack of guidelines from CBK to effect it.
Dr Ruto is now faced with the dilemma to either raise the limit, appease businesses but risk isolating Kenya from the pool of countries it could benefit with information on illicit financial flows, or keep it and risk losing support of the traders he promised.
The President also promised to review Credit Reference Bureau (CRB) framework that had listed over 14 million Kenyans by last year, as way to open up Kenya’s credit market and reduce cost of loans.
“We shall take measures to drive down the cost of credit. Our starting point is to shift the CRB framework from its current practice of arbitrary, punitive and all or nothing blacklisting of borrowers, which denies many credit,” he said, arguing that a new system of credit score rating was the solution.
Banks rely on information on a person or a business’ credit history to make judgments on whether to lend to them and how to price loans and it is not clear review of the CRB framework will open up the credit market.
A government’s move to suspend CRB listing in the country last year backfired causing banks to go slow on lending due to lack of credit information about borrowers and it’s not clear how changing the framework will affect the credit market.
The ultimate test for President Ruto, however, will be how he manages the cost of living, having rose to State House on the platform of defending the interests of the poor.
Additional taxes coming
Commodity prices in the country are at highest levels, fuel and electricity prices have shot by at least 15 per cent this month and additional taxes await next month, when Kenya Revenue Authority (KRA) adjusts excise duty on key commodities.
While the President’s first action was to scrap subsidies faulting them for distorting markets and being prone to abuse, what matters to poor households is prices at which they buy essential goods when they go to the market.
“The interventions in place have not borne any fruit. In addition to being very costly, consumption subsidy interventions are prone to abuse, they distort markets and create uncertainty, including artificial shortages of the very products being subsidized,” Dr Ruto said in his inauguration speech.
As a condition to Kenya under the 38-month Extended Credit Facility programme, the International Monetary Fund (IMF) in July asked Kenya to eliminate subsidies. The government finds itself making uncomfortable policy actions on IMF directives, a reality that is also expected to stand in his way.
“The authorities intend to continue gradually realigning domestic to global fuel prices in FY2022/23 to eliminate the fuel subsidy by October 2022. They are committed to preserve achievement of FY2022/23 fiscal objectives by aligning the pace of the domestic price adjustment to reduce the cost of subsidies and identifying budgetary offsets through rephasing of domestic, non-priority capital spending to keep the net cost of subsidies within available fiscal space,” the IMF report stated.
Players in different sectors have expressed various views on the removal of subsidies but all agree that consumers will suffer high prices in the short-term, urging the government to lower taxes to cushion the economy.
“It’s true the subsidies were becoming unsustainable for the government and so while in the short term prices will increase, in the long run they will stabilise as global prices come down. But the government should consider eliminating or reducing some of the taxes on fuel which contribute to the high prices, while eliminating the subsidies,” says Mr Rajan Shah, the Kenya Association of Manufacturers chairman.
With the government faced by liquidity challenges, there is little room, if any, to reduce any taxes.
It is not clear yet whether the current fertiliser subsidy, expected to lower prices to Sh3,500 for a 50kg bag, will lead to actual low food prices, considering that the country this year has continued to witness poor rains, with the agriculture sector having contracted between January and June.
“We urgently need to expand our tax base. We will make KRA more professional, efficient, responsive and people-friendly. I urge taxpayers to respond by undertaking their patriotic duty and pay taxes,” Dr Ruto said in his inauguration speech.
The government desperately needs the taxes to settle debts, including the public debt, which hit Sh8.5 trillion in June, pending bills valued over Sh600 billion and stalled projects that were valued at Sh9 trillion by Parliament last year.
Dr Ruto has also committed to allocate Sh50 billion from the budget into the ‘hustler fund’, a key promise to the youth during campaigns and he may have to divert funds from other functions, with the government currently running on a tight budget and the current fiscal year budget already planned.
The President’s plan is to capitalise the Micro, Small and Medium-sized Enterprises (MSMEs) by availing funds for on-lending cheaply to chamas, saccos and cooperatives.
“To implement all these interventions, we shall establish a Ministry of Cooperatives and SME Development mandated to ensure that every small business has secure property rights, access to finance and a supportive regulatory framework,” he said.
A promise looked up by millions of small business owners – mostly informal and unregistered – to ensure they benefit the intended, the new ministry will have a huge task to get and keep their records while ensuring they pay back loans, or could end up like many other funds that have not made an impact.
The Hustlers’ fund would join others such as Youth, Women and Uwezo. Critics see creation of such funds as reactionary measures from the political class that rarely resolve challenges in the sector.
But Kenya Kwanza allied MPs say the fund will be modelled in a way that it will be administered by the national government at the ward level for ease of access.
Garissa Township MP Aden Duale said they are determined to ensure that the fund achieves its purpose of helping the intended recipients.
Clear road map
Mr Duale disclosed that President Ruto during his first address to Parliament will also present a clear road map on how the fund will be administered.
However, Kitui Central MP Makali Mulu said the fund will flop just like others created before.
“We have had many funds before but what have they achieved? The challenge we have had is that once you give people funds, especially money from the government, they think it’s their right and should not therefore pay it back,” Dr Mulu said.
“Most of those so-called hustlers may not access the fund due to the legal requirements hence it may end up not serving the intended purpose,” he added.
While politically it could give him a mileage at the Coast, the President’s promise to revert port operations to Mombasa from Nairobi and Naivasha could portend death of the standard gauge railway (SGR) line, or reduce its revenues going forward if it is reduced to compete with truckers.
In Mombasa, the port operations are expected to return jobs and boost the county’s revenues, but for the national government, the SGR’s economic burden will just get worse since nearly 90 per cent of the line’s revenues come from cargo and the government had to force traders to use it before clearing goods in Nairobi and Naivasha, to boost its operations.
Some truckers have already said they will be returning to road haulage. The Azimio coalition has slammed Dr Ruto and his deputy Rigathi Gachagua over the many “road side declarations”, among them the decision to revert port operations from Naivasha to Mombasa, increase of budgetary allocation of the Judiciary by Sh3 billion and the scrapping of the fuel subsidy.
Lawyer Danstan Omari told the Nation that some of the declarations fly in the face of the rule of law and normal way of running of the government.
Mr Omari argues that the government is run collectively through decisions by the Cabinet as well as other government institutions like Parliament.
“Ruto seems not to have come to terms that campaigns are over. Issues to do with diplomatic severance must go through the Cabinet because there is a possibility that Uhuru’s Cabinet discussed the issue,” said Mr Omari.
“Appointing the Inspector-General to be in-charge of the police budget is within his rights. But it requires putting in place infrastructure like the accounting and audit units; modalities of how that money is going to be accounted for. It is the same issue with the relocation of the port operations. Other than Kenya there are other countries that entered agreement to use the facility,” he added.
Go slow on some declarations
Similar views were shared by constitutional lawyer Bobby Mkangi, who said Dr Ruto may be required to go slow on some of the declarations until having his Cabinet in place for executive decision.
“There is prudency for him to slow down to have institutions responsible in place so that such decisions stand the test of time,” said lawyer Mkangi.
Azimio Saturday said the order by Mr Gachagua for the Directorate of Criminal Investigative (DCI) officers to keep off government offices was against the independence of the institution.
The coalition said Budget approval is the function of the National Assembly. The Cabinet through the National Treasury prepares budget policy for subsequent approval by Members of Parliament.
“He has purported to allocate the Judiciary some token funds. This is a mockery of the basic intelligence of consumers of justice and must be seen for what it is. Financial and operational autonomy of the Judiciary cannot and will not be guaranteed by tokenism,” said the coalition in a statement Saturday.
Reporting by Peter Mburu, Moses Nyamori and Samwel Owino