Mounting Debt, Inflation Awaits New Kenya President

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(Bloomberg) — William Ruto took the helm of East Africa’s biggest economy, inheriting a litany of problems ranging from burgeoning debt to growing hunger caused by one of the worst droughts in decades.

Ruto was sworn in as president at a ceremony in the Kenyan capital, Nairobi, on Tuesday — a week after the Supreme Court validated his victory in last month’s election. Official results showed Ruto, who has served as deputy president since 2013, won 50.5% support and Raila Odinga, a former prime minister, 48.8%.

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“I affirm that I will truly and diligently serve the people and the Republic of Kenya in the office of the President,” Ruto said. “I will do justice to all in accordance with this constitution, as by law established, and the laws of Kenya, without fear, favor, affection or ill-will.”

Kenya’s debt increased more than four-fold to 8.58 trillion shillings ($71 billion) under Ruto’s predecessor, Uhuru Kenyatta, who invested heavily in new rail links and other infrastructure. The surge in liabilities left the country at high risk of debt distress, according to the International Monetary Fund.

The cost of servicing public debt is poised to jump by a third to a record 1.39 trillion shillings in the fiscal year through June 2023, more than half of projected state revenue. The nation spent almost 57% of tax income in the past financial year to pay off loans, according to the Treasury.

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“Ruto’s election could constitute a path away from the past decade’s expansive fiscal policy, although raising revenue to sustainably finance county government spending will be challenging,” according to Mark Bohlund, senior credit research analyst at REDD Intelligence.

Kenya is also among nations including Sri Lanka, Peru, Ecuador and Iran that face a heightened risk of civil unrest as governments grapple with the aftershocks of the surge in inflation, according to an index developed by risk consultancy Verisk Maplecroft. Price have jumped because of the rise in energy and grain prices stemming from Russia’s war with Ukraine, while the worst drought in at least four decades has left almost 5.2 million people facing hunger, according to the United Nations.

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Ruto, 55, is the fifth president to lead Kenya since it gained independence from Britain in 1963. A self-described “hustler,” he went from selling live chickens on the side of the highway to owning one of the biggest poultry farms in the country, while expanding into businesses including hospitality and real estate. 

A former deputy president under Kenyatta and an ex-agriculture minister, Ruto came to power with campaign pledges including plans to invest in farming, which employs more than 40% of the workforce, and small business to help boost job creation. He also promised to “put the brakes on borrowing,” saying loans will be limited to priority areas such as agriculture, and adjust fertilizer prices to help boost food output and help reduce the cost of food.

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With the election season now ended, Ruto’s administration must quickly turn to the many economic challenges it needs to address, the International Crisis Group said in an emailed statement.

“Given sky-high popular expectations and an economy in dire straits, governing may well prove tougher than campaigning,” it said. 

Kenyan eurobonds weakened in the run-up to the vote, partly on concern that Odinga would restructure the nation’s debts and worries that there may be a repeat of post-election violence that has tainted previous ballots.

The yield on Kenya’s 2024 bonds has fallen almost 400 basis points to 11.36% since the Supreme Court’s Sept. 5 ruling, while the rate on its 10-year debt has dropped almost 100 basis points to 11.59%.

“With the election now in the rear-view, we think Kenyan bonds will continue to rally,” said Patrick Curran, a senior economist at research firm Tellimer Ltd. “It will be important to see who he appoints into key economic positions —like the minister of finance — and the rhetoric of his administration to the ongoing IMF program.”

The IMF in July approved the disbursement of a $235.6 million loan to Kenya under a $2.34 billion, 38-month program approved in April 2021.

Read: IMF Agrees $236 Million for Kenya, Urges to Keep Reform Plan