President Uhuru Kenyatta’s interventions are softening the economic blows to Kenyans, even if some of them expire a month after next year’s elections.
The interventions on electricity, animal and chicken feed, fuel, school fees and loans have saved Kenyans in a year when the majority say their economic situation has deteriorated.
However, economic analysts warn that the state could use the interventions as a hiding place for deep-seated problems in the economy in order to prepare Kenyans for further setbacks in the near future.
âMost of these interventions are just a kick in the can. It will likely be a major headache for the next administration, âsaid Churchill Ogutu, IC Group economist.
For example, last Tuesday the state saved Kenyans from the highest fuel prices in the country’s history by choosing to pay oil marketers in full on behalf of consumers.
The state applied a fuel subsidy to keep prices unchanged for the third current month and save consumers from soaring Sh18.32 to a liter of gasoline. The prices for diesel and kerosene should rise by Sh21.89 and Sh23.53 respectively.
The subsidy has helped alleviate the pain at the pump for consumers amid rising crude oil and weakening shilling – both safe recipes for fuel price increases.
“The government will use the Petroleum Development Levy to cushion consumers from otherwise high prices,” said Daniel Kiptoo, director general of the Energy and Petroleum Regulatory Authority (EPRA), in a statement announcing the monthly price guide.
High fuel prices would have unleashed price pressures across the economy, affecting the cost of living.
But maintaining the subsidy could prove difficult, especially with competing budget needs, which saw the state, for example, develop the Sh18.1 billion fund to support standard-gauge rail operations in September.
Kenyans struggling to keep up with loan repayments below Sh5 million have also been spared from being listed on CRBs for 12 months through September next year.
Not having to freeze lists gives individuals and small businesses a breather, but it also prepares them for a massive negative list to be made next year if they don’t resume repayments.
This means that borrowers who could abuse this window of opportunity by slamming the brakes on loan repayment will ruin their creditworthiness after the freeze on offers.
This will happen in a year in which the financial situation of the majority of Kenyans has deteriorated and only 17.1 percent of households are able to meet their daily needs, cope with shocks such as illness and invest in future goals.
A joint survey by the Central Bank of Kenya (CBK), Financial Sector Deepening (FSD) Kenya and the Kenya National Bureau of Statistics shows that the economic health of 73.6 percent of households has deteriorated this year compared to 2019.
“The main reasons for the deterioration were the inability to cope with shocks and challenges in managing their daily needs,” according to the FinAccess Household Survey 2021.
The results of the survey could mean that a majority of Kenyans have not yet weathered the Covid-19 storms and returned their economic status to pre-pandemic levels, despite the state easing measures to contain the spread of the virus, such as lockdowns and curfews .
The economy lost 737,500 jobs last year.
Mentoria Economics chief economist Ken Gichinga said a number of economic sweeteners could mean crowding out the private sector and forcing the state to light fires to look like it was doing something about the shocks.
âThese could actually be sweeteners that go with the season of politics. But when in the long run it is much more difficult for politics to reduce people’s reliance on government handouts; it will be a challenge, “said Gichinga.
“We can have a number of sweeteners, but basically we’re going to do these things all the time, and raise taxes and debt until we have a model that supports the private sector to address issues like business costs and interest rates.”
The government also decided in July to cut annual school fees for parents following the disruptions from Covid-19 in the adjusted education calendar.
However, the school fee cuts – between Sh10,000 and Sh21,920 annually – will only last until March 4th.
The state recently saved livestock and chicken farmers from rising feed prices after the Treasury Department granted millers a twelve-month exemption from import duties on materials used in the manufacture of that feed.
The exemption is valid from November 1, 2021 until the end of October next year and helps 18 millers to import the feed tax-free.
These tax-free imports are expected to result in lower prices for farmers as President Uhuru declared the drought affecting parts of the country a national disaster on September 8th. He had the Minister of Agriculture, Peter Munya, on October 20th. instructed to work with the National Treasury to develop a framework to ensure a reduction in animal and chicken feed prices.
âIn order to bring about a reduction in feed prices, I order and instruct the Cabinet Secretary for Agriculture, together with the National Treasury, to issue a framework within seven days that will facilitate the reduction of the cost of animal and chicken feed. “Said the President.
Farmers face increased costs of maintaining their livestock due to the rise in feed prices as a result of the generally dry conditions in the country.
For example, the price of a 70 kilogram bag of milk flour rose from the average of Shillings 2,500 given by farmers in August last year to over Shillings 3,500. paid in the last month. The price of chick swamp has also increased by nearly Sh1,000.
The president’s intervention continued his string of giveaways that hide the true picture of the hardship in the economy. But the series of interventions now believed to be helpful is preparing consumers for a possible sudden setback should they expire before economic conditions improve.
âMost of these interventions are short-lived, which means that at some point the government will require a fire-fighting operation as it runs into implementation risks. I don’t see any fireproof solutions, for example in reducing electricity bills, âsaid Ogutu from IC Group.
President Kenyatta promised last week to cut electricity bills by 15 percent in December and another 15 percent by the end of March next year.
The interventions will help bring the bills down from a 40-month high that consumers will have to pay after an increase in the fuel surcharge on electricity tariffs.
Energy regulator EPRA raised the fuel fee from Sh4.21 last month to Sh4.63 in an announcement Friday, the highest since June 2018.
The sustainability of the president’s plan, which depends on the losses of the electricity-cutting system in Kenya and the reduction of their prices by independent electricity producers (IPPs), is not clear.
System losses over the past five years averaged 22.2 percent in the last few fiscal years – the best value was 18.9 percent in June 2017.
The President’s instruction can be achieved in a short time, since the causes of system losses, which in 2021 will amount to 39.67 billion Sh. required long-term interventions.
Uhuru also hopes the state will reach an agreement with IPPs to cut electricity prices, which will pass another 15 percent on to consumers by March. But the IPPs opposed the unilateral attempt to reduce the cost of selling electricity to Kenya Power.
âThe execution risk is associated with this intervention. The promise relies on IPPs, but the state assumed it would just go smoothly, âOgutu said. Mentoria Economic’s Gichinga said weaning the country off of soaring debt, taxes, and short-lived government sweeteners requires policies that can boost the private sector.
He also noted that a fundamental shift from strong infrastructure-driven growth to private-sector-led growth could improve the lives of Kenyans.
âIt is not sustainable to apply short-term solutions to long-term problems. The moment you have a tough government agenda fueled by debt, taxes must be penalized. Therefore, the state is not thinking of lowering fuel taxes, âsaid Gichinga.