(Bloomberg) -- Kenya’s National Treasury will slash expenditure and take on more loans to compensate for revenue plans it was forced to abandon.

The government had planned to introduce new taxes to help raise 346 billion shillings ($2.7 billion) in the fiscal year that began on July 1. It scrapped that plan after protests that led to the deaths of at least 41 people.

Instead, the Treasury will reduce expenditure by 177 billion shillings and borrow the balance, President William Ruto said in a live address on Friday.

“We would be proposing to the National Assembly a budget cut of not the entire 346, but a budget cut of 177 billion and borrowing the difference” Ruto said. “Cutting the entire amount in our assessment would significantly and drastically affect the delivery of critical government services, while borrowing the whole amount in full will occasion a fiscal deficit by a margin that would have significant repercussions on many sectors, including our exchange rate and interest rates.”

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The revenue shortfall will increase the budget deficit for 2024-25 to 4.6% of gross domestic product, compared with an earlier estimate of 3.3%, Ruto said. The president also said he’d appoint a panel to carry out a forensic audit of the nation’s debt.

X Spaces

The borrowed funds will enable the government to continue with plans to hire tens of thousands of junior secondary school teachers, writing off debt owed by coffee farms, retain a fertilizer subsidy and settle arrears owed to counties and for pensions. The government will also dissolve 47 state corporations with overlapping functions, he said.

Later, Ruto held a two-hour-long X Spaces session to directly engage with protesters. As many as 3.3 million people listened, according to the social-media platform. The president fielded questions on a range of topics including deaths during protests — including that of a 12-year-old school boy — alleged abductions of protesters by police, corruption by public officials, unemployment and the economy.

“We didn’t do as much communication as we should have, and that is a regret that I have admitted,” he said about the government’s failure at promoting his economic agenda with Kenyans.

Taking to X to address his citizens “just shows how bad his communication team is” as social media has been the cradle of the protests, said Odanga Madung, a researcher at web browser maker Mozilla.  “He needs to stop all the pandering and respond to Kenyans’ concerns by taking direct action on the issues they are concerned about,” Madung said by phone.

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(Updates with more from briefing in fifth paragraph and president comments on X Spaces from eighth)

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