Analysts warn of economic shocks from Gen Z protests persist

Analysts believe that while current business disruptions in Kenya might not significantly impact the country’s economic outlook, prolonged protests could adversely affect key sectors like tourism. David Omojomolo, an economist with Capital Economics, noted that if the disruptions are short-term, their effect on growth might be limited. However, the long-term impact on public finances could worsen concerns about potential sovereign default.

The recent deadly protests, driven mainly by youth via social media, led President William Ruto to retract higher taxes from the Finance Bill 2024 and dismiss several ministers. This instability has alarmed international investors, raising fears about Kenya’s ability to meet its debt obligations.

Following the scrapping of IMF-backed tax increases and ongoing protests, investors demanded more than 11 percent to purchase Kenya’s Eurobonds on the London Stock Exchange. Although there were initial fears about Kenya defaulting on a $2 billion Eurobond maturing in June, the country managed to repay the debt by securing $1.5 billion in new funds and using World Bank inflows.

The unrest in Nairobi has also sparked similar, though smaller-scale, protests in Uganda and Nigeria. Omojomolo highlighted that these fiscal challenges could worsen with additional borrowing needed to address the scrapped tax plans and increased spending to appease protesters. The instability has led to wider sovereign dollar spreads for both Kenya and Nigeria, reflecting growing investor concerns.