Four dead. That is the cost of balancing a budget in Nairobi this week. As protests erupted across Kenya over fuel price hikes, gilt yields in London barely flickered. The market, as ever, is indifferent to human tragedy. It only cares about the spread.
The Kenyan shilling has lost 15% against the dollar this year. The government, desperate to secure an IMF bailout, has done what finance ministries always do when cornered: it raised taxes. Petrol now costs 200 shillings a litre. For a population where the median daily wage is 700 shillings, that is not an inconvenience. It is a death sentence.
Let us be clear about the mechanics. Kenya imports nearly all its crude. When the Federal Reserve raises rates, the dollar strengthens, and commodity prices rise in local currency terms. The Central Bank of Kenya cannot print its way out of this without triggering hyperinflation. So the government does what it must: it passes the cost to the consumer. This is fiscal reality. It is also political suicide.
The IMF has been here before. In 2011, its insistence on austerity in Greece led to riots in Syntagma Square. In 2019, it was Lebanon. Now it is Kenya. The pattern is always the same: a country borrows too much, the currency collapses, the fund steps in with conditions, and the people take to the streets. The only variable is the number of body bags.
Opposition leader Raila Odinga has called for a 'total shutdown'. But what exactly is the alternative? Subsidies are a temporary fix that balloon the deficit. Price controls create black markets. Default would cut off access to international capital markets for a generation. There is no painless option. There is only the question of who bears the burden: the bondholder or the citizen.
Investors are watching. The Kenya Eurobond due 2024 is trading at 85 cents on the dollar. That is not distressed, but it is uncomfortable. A prolonged strike could tip the economy into recession, cratering tax revenues and forcing the government to choose between paying civil servants and servicing debt. The IMF has already warned that the fiscal targets are at risk. If Kenya misses, the next tranche of the loan will be delayed. Cue more volatility.
The tragedy is that this was predictable. Emerging market crises follow a script: commodity shock, currency crisis, austerity, unrest. The IMF writes the screenplay; the local government directs the violence. And the global investor class sits in the stalls, checking yields on their smartphones.
Four dead in Nairobi. The FTSE 100 closed up 0.2%. The market has priced in the unrest. It always does.
