Since taking office last September, Kenya’s president William Ruto has focused on reducing the country’s national debt to tackle the looming risk of default and to curb costly monthly payments to creditors including China.
At the same time, Kenya has grappled with the effects of higher temperatures and lower rainfall, including a devastating drought in the Horn of Africa earlier this year which scientists said was made 100 times more likely by climate change.
Ruto’s argument that debt repayments from developing countries must go hand in hand with support for those hardest hit by climate change has taken hold in international forums, where both the World Bank and the IMF are under pressure to free up cash to address these joint challenges.
Ruto spoke to Moral Money reporter Kenza Bryan and climate correspondent Attracta Mooney, as world leaders met in Paris in June to discuss reforms to the global financial system.
Kenza Bryan: How optimistic are you about reaching an agreement on special drawing rights [a reserve asset created by the IMF], and on pause clauses [which temporarily halt repayments on loans when a country is hit by a disaster]?
William Ruto: Our ambition is larger than just the SDRs. Our position is that you should be able to hammer out a bigger deal that clearly allows us in Africa, the global south and developing countries, to access development resources, with urgency and at scale. Our position is that it is necessary to reform multilateral development banks.
What is urgent now is emergency liquidity, debt relief — because many countries have no space for debt — and climate change [financing]. Because of floods and drought like in Kenya, there is diversion of resources from paying debt, from providing social services, and feeding people. We have 3.5mn people [facing acute hunger] to feed. We have lost 2.5mn heads of livestock, so we are in a crisis situation.
KB: Just in the recent droughts?
WR: Yes, last year. So, what we need now is for us to agree with the multilateral lenders, the same way we created $650bn for SDRs [during the Covid pandemic], we can create $500bn every year for at least 10 years [for development and managing climate change].
And we don’t even want that money to be given to us. We want that money to be used to settle the debts that we are supposed to be paying, so that instead of repaying debt, we can use our resources — the ones that we are using at the moment to repay debt — for mitigation, for renewable energy. We can even agree: let them suspend this [debt] for 10 years.
KB: The $500bn [in commitments from the international community], that would basically be in debt cancellation or debt pauses?
WR: Yes. We pause for 10 years. And we will pay — we are not running away from our debt.
Attracta Mooney: And the money that is freed up because of that pausing, would it be used for development or for climate change mitigation?
WR: For development, and to a small extent climate mitigation.
On climate change, we hope we can agree to a global mechanism outside the Bretton Woods [system of monetary management that includes the World Bank and IMF], outside multilateral development banks, because the architecture for multilateral development banks is wired for something else.
They cannot deal with the challenge of climate change; they are hostages to national interests and to shareholder interests.
The World Bank and IMF are businesses with shareholders. When they were created [in 1944] Kenya did not exist. There were only 44 countries there [as founding members].
We need a new financial mechanism to deal with climate change that is not controlled by a shareholder or is not subjected to the interest of any country. [And] we need new money. How do we get the new money? We propose that the new money can be found in the [tax and levy] initiatives that are already being proposed.
The IMF has proposed a carbon tax, right? We are ready, even for us in Kenya, we are ready to pay for our share of carbon tax. The IMF is saying $25 for every tonne of carbon you produce.
AM: You won’t produce that much [in carbon emissions] in Kenya, compared to, for example, any of the big emitters.
WR: Yes, let the people who burn the most, pay the most.
AM I understand your point, but do you think you could get China on board with that?
WR: It should be a global agreement. Why not? Why do we imagine that we can’t get China? I think it’s doable.
The European parliament has already passed the financial transaction tax. It should not be a European problem; climate change is not a European problem. We should globalise the financial transaction tax. [In] Kenya we want to pay, we want everybody to pay. It’s a global challenge. Aviation tax . . . maritime tax. We are ready to pay.
KB: Some people have said African countries should be excluded from any emissions taxes.
WR: No, we want to pay. We do not want to be excluded. We want to pay as much as everybody pays. It’s the only way we can get it done [to ensure all countries are treated equally]. Today, we are paying eight times more in interest rates on the money we borrow from the World Bank and the IMF. We don’t want to end up with another situation where we are paying eight times more [to deal with climate change]. We want to pay equal to everybody. And the reason they are making us pay more is because there are shareholders. We want to be shareholders this time.
KB: You made some interesting points in a roundtable earlier about maybe moving away from the loss and damage talk. [The question of “loss and damage” funding for developing nations has been contentious for years, with rich countries reluctant to accept financial responsibility for climate change caused by industrial activity and offer financial support to poorer countries. But last year, countries agreed to create a loss and damage fund at the UN COP27 climate talks in Egypt].
WR: It’s a useless talk. [The] loss and damage [fund] will never happen. When you go to your country . . . if you tell [citizens] today: ‘I want you to pay tax. I collect the money to go and sort out a global problem.’ They will ask: ‘how is it our business?’
And when there is a contest between national interest and a global good, national interest will always win.
So it’s a waste of time. And you’ve seen it takes us to a place where we have a toxic conversation: ‘you caused this, you must pay’ . . . we don’t want that, we don’t want the tension, because climate change is not a north problem, it is not a south problem.
Climate change is a global problem: the north is in [as much] trouble as the south is, the emitters are having the [same] trouble as those who are not emitters. Let’s just agree on the solution [for the new mechanism]. And then finally let’s agree on the governance structure, the power structure.
KB: Can you tell us a bit more about [the new mechanism], would it be a body, an organisation, a bank?
WR: Yes, the same way the World Bank was created, why don’t we create a bank that deals with climate change?
AM: So, create a global green bank?
WR: Yes. I was having a chat with [French president Emmanuel] Macron and he was saying, ‘who is going to collect these taxes?’ And you see, when the World Bank and the IMF were created, those questions were not asked.
AM: So you want to bypass the traditional financial architecture and create something new?
WR: The current, traditional financial architecture cannot solve climate change. It is not wired for it, it has no capacity. There are issues of legacy, there are issues of bureaucracy. They just do not understand it.
And the problem is, they are hostages to shareholders. We don’t want a situation where America will call the shots and the next guy will call the shots, and they will decide who gets what. That’s why we are paying eight times more than others [to borrow], because we are not shareholders. This time around, we are saying we do not want a situation where we are not sitting at the table because we didn’t pay our part.
KB: Which forum globally could this be created in?
WR: This is the forum [here in Paris], we start here and then we go to Nairobi for the Africa climate summit. We go to the UN General Assembly with [UN secretary-general António] Guterres for the Climate Ambition Summit. And then we go and ratify it in COP28 [the UN climate summit due to take place in Dubai in November].
AM: Have you spoken to the COP28 team about this?
WR: I have. They are aligned 100 per cent. In fact, the [president-designate] of COP28 was here, he was in Nairobi two days ago.
AM: So you’ve had discussions with Sultan al-Jaber . . .
WR: Yes. This is exactly what we need. The current IMF and World Bank were agreed by 44 countries in three weeks. They still exist 80 years later . . . so it’s doable.
KB: Have you spoken to any world leaders who back this?
WR: Yes, the whole continent [of Africa] is behind it. We are not looking for something that [isn’t already under discussion in terms of taxes and levies]. The IMF itself has proposed a carbon tax. They are going about it wrongly because they want [only] a few countries to pay. We buy fossil fuels, let us pay taxes on the fossil fuels we buy.
KB Have any leaders today from the western world backed the idea of the bank?
WR: How would they back it? They are shareholders of the World Bank and the IMF. They want to continue controlling the power. So it’s going to be a fight but we’re ready for it.
KB: So Macron didn’t back it . . .
WR: Macron is . . . “comme ci, comme ça”. You know, because they want us to have the usual conversation: ‘Oh yes, incremental, little by little.’ Why? Why do you want to have a little conversation? We know where the problem is.
KB: So how will you change their mind?
WR: They will change their mind. We will make it impossible for them to not see our point, because we are right. You can never go wrong by doing the right thing. We are right. They know we need a global [solution]. Their problem is that they are stuck in the how.
WR: We’ve been at this [trying to find a global solution to finance efforts around climate change] from 2015 [when under the Paris accord countries agreed to limit global temperature rises] and things are not getting better. Now we are going to COP28. The question being asked now is how much carbon footprint have we [accumulated] by attending these COP meetings and getting no results.
AM: So what about reform of the traditional architecture?
WR: We need reform of the IMF and the World Bank, so that we can work with them on the debt we already have.
But the global financial system on climate change [we are proposing] needs to invest in renewable energy: make renewable energy much more attractive to invest in than coal.
Even with the whole problem [of global warming] we have, we are still investing more in fossil fuels [than renewable energy]. And we all know that we are going to sink. The reason why is because it continues to be lucrative to invest in carbon fuels.
The way to make it attractive to invest in green energy is to create [this green bank]. It’s the only way to transition away from fossil fuels.
KB: And would the financing of this all come from taxes?
WR: Do you know how much money we will raise using those taxes? We will raise between $1.5tn and $2tn, from the carbon tax, from the global financial transaction tax, from maritime, shipping, aviation [levies] . . .
[If we had that money] we will be on the way to net zero by 2050.
After [the Paris agreement in 2015], Europe — because they invested money — their emissions came down. All of the OECD countries’ [emissions] came down. But, the rest of the world, because they have no money to invest in reducing emissions, emissions went up.
AM: On the reforms we’ve talked about, what about the Bridgetown Initiative [which calls for an overhaul of the global financial architecture]?
WR: The Bridgetown Initiative says we need to raise $500bn using the IMF and World Bank to sort out debt and emergency liquidity, which we agree with. But beyond Bridgetown is what I am talking about. We need Bridgetown and all the things that we have to do to sort out our current situation, multilateral development, lenders and borrowers, shareholders — all that conundrum.
Bridgetown will not be sufficient [when it comes to climate finance]. [The world has] a deficit of $3.5tn to deal with climate finance.
AM: Will you put your name to the Bridgetown agenda?
WR: Why not? Done.
AM: So you’re backing it . . . Because there’s this idea that it’s a mostly an initiative that supports the low-lying countries, small island states, and is not helpful for African countries.
WR: No, no, no, I think what they are thinking is bigger than the island states.
KB: What is your strategy for bringing Kenya’s [$70bn of total public] debt down?
WR: When I came into office, the first thing I did was to remove subsidies that were taking a lot of our resources. My emphasis is to raise resources locally rather than borrow.
France, for example, they do 45 per cent revenue as a percentage of GDP. Kenya, we do [less than] 14 per cent. So I went to raise our percentage of collection of taxes from 14 per cent to 18 per cent in the next five years.
AM: How will that go down with your voters?
WR: [We are] sealing corruption loopholes, making sure that we use technology to create more efficiency. We are digitising all government services.
KB: [Given your own debt repayments to China] I wonder what you think when you look at the way Zambia’s deal is being held back by Chinese creditors? [Zambia agreed to a debt relief plan with China and other creditors in June.]
WR: It is an unfortunate situation but it speaks to the whole subject of debt and countries. I know there are many people asking, “will China come on board?”
But, you know, China lives in this globe. When this globe eventually burns because we haven’t done the right thing, are you telling me that China is going to be an exception? I don’t think so. And I don’t think China is made of mad people, I think they are also reasonable, and they realise.
I think China clearly understands where we are. That is why renewable technology is actually run by China. They are the ones doing all the solar panels. They know that is the future.
KB: Have you spoken to the Chinese premier today about your vision?
WR: No, I have not spoken to him. They know our position. Later this year, I’m going to have a conversation with the president of China.
KB With Xi [Jinping]. In what context?
Ruto: In the context of Kenya-Chinese relations, because they are our development partners, and also to contextualise where we are with climate change.
AM: And then on concessional financing, do you think that middle income countries like yourselves should get concessionary lending for energy transition projects or should that go to low-income countries?
WR: Why not? The whole reason why we are talking about a new mechanism for climate financing is because it must be concessional. That is the only way you can de-risk investments in renewable energy.
Fossil fuel energy is still attractive — that’s why people are still putting money [into it], because they are making money there. The day we flip it and make it possible for the private sector to make money by investing in renewable energy, there will be greater investment in renewable energy and we will be on the way to sorting out the equation around net zero.
The above transcript has been edited for brevity and clarity