Deadly Kenyan protests that scuppered tax hikes and a failed coup amid fading economic prospects in Bolivia this week are violent reminders of the dangers posed by faltering economies and punishing austerity measures.
“There are a lot of governments around the world all facing the pain, delayed fiscal pain, from the interest rate hikes that we’ve seen in recent years” said Charlie Robertson, head of macro strategy with FIM Partners, which invests in emerging market debt. Turmoil is spreading. In Nigeria, workers protesting rising fuel and food costs caused a nationwide power outage, and leaders face rising subsidy costs despite tripling petrol prices last year.
Rising borrowing costs mean debt service gobbles a growing chunk of revenues. This puts pressure on countries, including Kenya, to raise taxes and cut spending. Kenya, like others, borrowed heavily in the mid-2000s, when interest rates were low – and China was splashing cash via its Belt and Road initiative to lend to emerging markets worldwide. Over the past 20 years Kenya amassed some $82-billion of debt to build roads, railways and factories. But not all ambitious projects were completed and many Kenyans felt they had not benefited, while a slew of corruption scandals spurred allegations that elites enriched themselves.
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