Kenya’s President William Ruto on Friday proposed spending cuts and additional borrowing in roughly equal measure to fill a nearly $2.7 billion budget hole caused by his withdrawal of planned tax hikes in the face of nationwide protests.

Addressing the nation via major television channels, Ruto appeared deflated following weeks protests the youth following punitive tax proposals a slew of non-essential spending cuts appeared to cave in to the demands of more than 46,000 ‘contract’ teachers, thousands of doctors and nurses who were on strike when he spent Ksh200 million ($1.55 million) on a chartered private to senior fly government, comedians and members of his family to a US state visit in May.

Ruto scrapped the finance bill containing the tax increases in response to mass, youth-led demonstrations that have created the biggest crisis of his two-year-old presidency. At least 40 people were killed in clashes with the police and some demonstrators briefly stormed parliament last week.

Ruto said in a televised address that he would ask parliament for spending cuts totalling Ksh177 billion  ($1.39 billion) for the fiscal year that began this month and that the government would increase borrowing by about 169 billion shillings.

The changes also include dissolution of 47 state corporations to free funds for reallocation.

“The 47 state corporations with overlapping will be dissolved and their mandate transferred to ministries and state agencies,”  he said.

The president has been caught between the demands of lenders such as the International Monetary Fund to cut deficits, and a hard-pressed population reeling from rising living costs.

Analysts have said the bill’s withdrawal is likely to result in Kenya missing targets in its IMF programme, although the government does not have debts coming due for which it urgently needs cash.

Kenya’s budget deficit is now projected at 4.6 per cent of gross domestic product in the 2024/25 financial year, up from an earlier estimate of 3.3 per cent, Ruto said.

Austerity measures will include the dissolution of 47 state corporations, a 50 per cent reduction in the number of government advisers, the suspension of non-essential travel by public office bearers and the removal of budget lines for the president and deputy president’s spouses, he said.

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

He also announced a forensic audit of the country’s debt, which sits at more than 70 per cent of gross domestic product, and said he would announce changes to the government soon.

Following the speech, Ruto hosted a live audio forum on X meant to engage with young people. He faced sharp questioning about policy brutality, corruption and economic policy.

One activist involved in the protests, Osama Otero, questioned Ruto about alleged abductions of protesters by state security agents, saying he had been taken at 3am by men in plain clothes, blindfolded and taken to a house to be questioned.

“Mr President, are we in a terrorist country?” Otero asked.

Ruto, who had previously denied police involvement in dozens of reported disappearances, apologised for the treatment Otero had suffered and promised to take action on his case.

Protests have continued since Ruto scrapped the finance bill, with many demonstrators calling for the president to resign. But turnout has been down and some activists have called for a rethink of their strategy after Tuesday’s demonstrations were marred by violence and looting.

Activists have blamed the violence on thugs hired by state and politicians to discredit the protest movement. The government has said that opportunistic criminals are responsible.

• A Tell / Reuter report