Secure the nascent post-Covid economic recovery

According to the just released Economic Survey, the economy has roared back strongly post-Covid.

The economy registered a growth of 7.5 per cent in 2021, a major turnaround from 0.3 per cent in 2020. It literally collapsed after the government instituted a series of tight restrictions to combat the spread of the then raging Covid infections. All major sectors of the economy closed down and people stayed home.

According to the Survey, however, most economic sectors have bounced back. 

However, as the campaigns for the General Election hit home stretch, the economy will start experiencing jitters. This is likely to cause a slowdown just when it is in recovery. This will not augur well for Kenyans now badly hit by high cost of living.

There are several red flags to look for. According to the survey, agriculture did not do well. This is bad news for the economy. Agriculture is a key pillar of the economy, having the largest share of the country’s gross domestic product and providing the most jobs. 

If agriculture is down, then many households will be badly affected, and will not afford basics. An ongoing drought has wreaked havoc in many parts, resulting in high food prices, starvation and loss of livestock. As the rains come through, the government must find a way to get inputs like certified seeds and fertilisers to the farmers.

The shilling continues to come under huge pressure, and is depreciating rapidly. The loss of value of the shilling against the dollar is bad news for the economy.

The prices of all imported goods must go up in tandem, since it now costs more shillings to import the same goods worth the same price in dollars. Kenya is an import-dependent economy, with substantial inputs into the country’s manufacturing sector coming from foreign suppliers.

This, coupled with an expected outflow of capital to safe havens to wait out the elections means the government has a hard task to defend the currency. 

It cannot simply let the shilling drop like a stone, so there will be some tumultuous times ahead, as it navigates the whirlwind of the depreciating shilling to maintain macroeconomic stability in the economy.

In line with rising global world prices and a depreciating shilling, the prices of petroleum products will continue to rise. Right now, they are higher than they have ever been.  And, of course, fuel prices are a major determinant of the general price levels in the country, as they impact all production processes. 

The government has been keeping the price rise in check through a subsidy, but this is clearly unsustainable. It might have to reconsider the high levels of taxation imposed on petroleum products, with the objective of taming the prices. 

Further, inflation has now become an ogre. There is now a general price rise in commodities, which is playing havoc with the purchasing power of Kenyans. 

The prices of basic foodstuff like bread, milk, maize flour, cooking oil and cooking gas, have all shot up. This has become a very big issue, with no solutions in sight.

Two factors also give the government very little room for maneouvre. The first is the fact that the government is having a major cash crunch. Debt repayments have taken a huge chunk of government revenues, leaving it with very modest figures to manage other exigencies.

Secondly, the government is in a programme with the International Monetary Fund, which was agreed upon so that the latter could get a loan to support its budget. The stringent terms have resulted in a lot of belt-tightening and a wave of taxation measures. These have worsened the cost of living.

It looks like the government is caught between a rock and a hard place. It must employ all its policy instruments and creativity to keep the economy on an even keel. The nascent economic recovery must be safeguarded by all means. 

— gathukara@gmail.com