NAIROBI, July 5 (Reuters) – Kenyan President William Ruto announced on Friday a plan to address a $2.7 billion budget deficit by implementing spending cuts and increasing borrowing, following his decision to withdraw planned tax hikes due to nationwide protests.

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The withdrawal of the finance bill, which contained the tax increases, was a response to mass, youth-led demonstrations that have become the biggest challenge of Ruto’s two-year presidency. The protests resulted in at least 39 deaths in clashes with police, and some demonstrators briefly stormed parliament last week.

In a televised address, Ruto stated that he would seek parliamentary approval for spending cuts totaling 177 billion shillings ($1.39 billion) for the current fiscal year and an increase in borrowing by about 169 billion shillings. He emphasized that these measures aim to balance the demands of international lenders like the International Monetary Fund (IMF) with the needs of a population struggling with rising living costs.

Analysts warn that the withdrawal of the finance bill may cause Kenya to miss targets in its IMF program, though the government currently has no urgent debt payments due. The budget deficit is now projected to be 4.6% of GDP for the 2024/25 fiscal year, up from an earlier estimate of 3.3%, according to Ruto.

The austerity measures will include dissolving 47 state corporations, reducing the number of government advisers by 50%, suspending non-essential travel for public officials, and removing budget allocations for the president and deputy president’s spouses.

“I believe these changes will set our country on a trajectory towards economic transformation,” Ruto said.

He also announced a forensic audit of the country’s debt, which exceeds 70% of GDP, and hinted at upcoming changes to the government.

Following his speech, Ruto engaged with young people in a live audio forum on X, where he faced sharp questioning about police brutality, corruption, and economic policies. Activist Osama Otero recounted being abducted at 3 a.m. by plainclothes men, blindfolded, and questioned, asking Ruto, “Mr. President, are we in a terrorist country?” Ruto apologized for Otero’s experience and promised action on his case.

Despite Ruto’s withdrawal of the finance bill, protests have continued, with some demonstrators calling for his resignation. However, turnout has decreased, and activists are reconsidering their strategy after recent protests were marred by violence and looting. Activists blame the violence on thugs hired by politicians, while the government attributes it to opportunistic criminals.

($1 = 127.7500 Kenyan shillings)