Give Ruto-nomics time to take root and then judge him later

President William Ruto. In Ruto-nomics, the deficit is the most crucial element in returning the country to a sustainable path. [PCS]

While the nation heaved and cried over the Finance Act, 2023, decrying high taxes on fuel and the housing fund, we largely forgot to ask the bigger question: We had seen Kibaki-nomics, Uhuru-nomics, what then is Ruto-nomics?

President William Ruto's opponents would easily say Ruto-nomics is simply an increase of taxes and a pain to mwananchi. They are not only wrong but also looking at things on the surface.

The Kenya Kwanza administration inherited a huge public debt that had eroded fiscal space, making it difficult to run government. To them, the biggest issue Kenya was facing was not just pain in people's pockets but a realisation that the government had an over-leveraged debt position making it hard to help the same Kenyans who were in pain.

The administration inherited a budget that required them to borrow up to 6.2 per cent of Gross domestic product (GDP), a wide fiscal deficit. Instead the new government went to work, chopping down expenditure and cutting down the deficit to 5.7 per cent of GDP mainly through expenditure rationalisation, removal of subsidies and an effective liability management of public debt.

These actions are at the core of Ruto-nomics. He is focused on lowering the national debt and that the government is nimble and agile in service delivery while being frugal and cutting costs.

That said, the Kenya Kwanza administration, faced with the urgent need of protecting lives and livelihoods threatened by the country's longest drought in 40 years, meant the fiscal consolidation path would need a compromise to cushion Kenyans from the hard times.

To ameliorate the impact of the drought, the government earmarked resources to provide food and water to people and animals. This saw a marginal increase in the fiscal deficit to 5.8 per cent of GDP through the Supplementary II Budget.

Even with the burden of dealing with the drought, the government took a more frugal approach and registered a fiscal deficit below the target at 5.3 per cent, demonstrating the commitment to bring down the fiscal deficit progressively to 4.4 per cent this year.

In Ruto-nomics, the deficit is the most crucial element in returning the country to a sustainable path where debt is incurred only to spur development and the government has ample space to spend on crucial social investments to improve people's welfare.

President Ruto also wagers that by cutting down on government debt, banks will be encouraged to lend to the private sector, giving much needed capital and greater opportunities for businesses.

In fact, according to the Treasury the target primary balance in the financial year 2023/24 will be a surplus of Sh54.9 billion compared with a primary deficit of Sh32.2 billion in the financial year 2022/23. This is the first budgetary surplus in decades.

Further, the government has lowered domestic borrowing from the initial Sh586.5 billion to Sh316.9 billion. This provides a strong signal to the market that the government will not crowd out the private sector, which will result in reduced interest cost for debt service.

President Ruto believes in the long run, narrower fiscal deficit will bring Kenya to a strong position of debt sustainability. Projections by analysts indicate Kenya can bring down debt as a proportion of GDP from the current 64.4 per cent to below 55 per cent which is generally considered stable for an economy like ours.

The stability in debt levels will convince rating agencies like Fitch and Moody's to reassess our debt position. Positive reviews from them would make it cheaper to borrow from the international markets, making the running of government cheaper while allowing local banks to support business.

Further, the reduction in fiscal deficit is important in signaling to the private sector that the government will not have erratic tax targets, giving them comfort to commit long term investments into the country.

This will incentivise private investment and attract Foreign Direct Investment. These changes will encourage long-term private investment particularly in manufacturing through the Industrial Parks under development at the county levels. This will also promote agro-processing in counties where aggregation of various farm produce is ongoing.

President Ruto's government was handed a difficult task of turning the economy around, and he has not shied away leading from the front to stabilise the ship amid heavy tides.

This process and thinking is at core of the Bottom-Up Economic Transformation Agenda freeing up resources so that they can go where they are needed the most.

This is to support farmers, manufacturers and entrepreneurs in value addition as well as access to markets for their products while ensuring schools and hospitals and other social amenities are fully equipped to serve Kenyans better. All these will be done at a lower debt level but a higher output for Kenya and Kenyans.