Violent protests in Kenya and a failed coup in Bolivia highlight the dangers of economic hardship and austerity measures. These events are stark reminders of the turmoil that can arise when economies falter and governments impose severe fiscal policies.
Kenyan Protests and Bolivian Coup Attempt
Kenya’s President William Ruto reversed his support for a tax-hike measure after deadly protests erupted across the country. At least 23 people died as demonstrations against the proposed tax increases escalated into calls for a political overhaul. “It is not just the taxes,” said Mary Ngigi, a 37-year-old clothing company worker. “When you go to the hospitals, there is no medicine. When you go to the schools, there are no infrastructures.”
In Bolivia, President Luis Arce survived a coup attempt but continues to face severe economic challenges. The country is grappling with U.S. dollar shortages and soaring borrowing costs, which have downgraded its credit rating to “junk.” President Arce, a former economy minister, must navigate these issues while addressing the immediate threats to his administration.
Global Economic Crisis and Its Impact
The economic crisis reverberates far beyond Kenya and Bolivia. Low-income nations worldwide, still reeling from the 2020 global economic downturn, are now facing increased inflation and rising interest rates. These factors, coupled with the impact of Russia’s war in Ukraine on fuel and food prices, have created a perfect storm of financial instability.
“There are a lot of governments around the world all facing delayed fiscal pain from the interest rate hikes we’ve seen in recent years,” said Charlie Robertson, head of macro strategy at FIM Partners. “It’s not a surprise that Kenya might reach a breaking point.”
Nigeria, for example, has experienced nationwide power outages due to protests against rising fuel and food costs. Egypt is under pressure from the International Monetary Fund (IMF) to implement spending cuts and reforms despite record-high inflation exceeding 30%. Angola is similarly struggling with subsidy reductions.
Rising Debt and Fiscal Challenges
Many developing countries borrowed heavily in the mid-2000s when interest rates were low, leading to significant debt burdens. In 2023, a record 54 developing countries allocated 10% or more of government revenues to interest payments, nearly half of them in Africa. This mounting debt pressure forces governments to consider tax hikes and spending cuts, often triggering social unrest.
Kenya amassed around $82 billion in debt over the past two decades to finance infrastructure projects. However, corruption scandals and unfinished projects have left many Kenyans questioning the benefits. “There is no cut on corruption,” said Boniface Mwangi, a social justice activist in Kenya. “We have no problem paying debt, but what did you do with that money that you borrowed?”
President Ruto, who has vowed to combat corruption, faces the daunting task of balancing the budget while maintaining essential services and infrastructure. Despite issuing more debt earlier this year at high interest rates, Kenya avoided default. However, the protests have further destabilized the country’s financial markets, causing bond prices to slide.
Argentina has also been affected by austerity measures and planned reforms. General strikes in May against President Javier Milei’s cost-cutting policies brought significant unrest. Rising borrowing costs mean debt service consumes a growing portion of government revenues, adding pressure on countries to raise taxes and cut spending.
The World Bank and other international institutions have warned that middle-income countries are increasingly vulnerable to debt crises. “Without action, 2024 will see a further rise in debt vulnerability — potentially leading to reversals in development outcomes,” said Axel van Trotsenburg, World Bank senior managing director.
Source: ReutersÂ
