State officials at pains to explain how to address rising inflation

National Dialogue Committee receives expert views from Housing PS Charles Hinga, Treasury CS Njuguna Ndungu and his Energy counterpart Davis Chirchir at Bomas of Kenya on November 06, 2023. [Samson Wire, Standard]

Treasury Cabinet Secretary Njuguna Ndung'u has said the way to save Kenyans from the grip of a choking economic environment is by nurturing markets and supporting the manufacturing and housing sectors.

Ndungu also highlighted the importance of developing tax policies that do not distort market demand or hinder growth.

Speaking before the National Dialogue committee yesterday at Bomas of Kenya, the CS called for strategic interventions to support the manufacturing and housing sectors.

"The Hustler Fund, Government to Government deal (G to G), affordable housing is an intervention. The whole issue is you start it off and once it is working, you release it to the market. For it to work, the market has to be nurtured," said the CS.

"If markets don't function, production will fail downstream. You cannot produce if the market is not going to give you the returns. There's no way you will find people producing food when they cannot sell the food," he added.

Ndung'u hinted at a possible tax review in the next budgetary cycle arguing that the current interventions were necessary to ignite the market.

He emphasized the importance of crafting taxation policies that do not disrupt the demand structure of specific goods or distort the overall market.

He noted that the journey towards tax reform had commenced last year and expressed hope that it would play a pivotal role in shaping the design of new taxes for the upcoming budget cycle.

"This is going to be very important to us because it gives us a very strong intellectual platform under which we can design a new tax regime," said the CS.

And Energy Cabinet Secretary Davis Chirchir said Kenyans might soon be paying Sh300 for fuel.

Israel-Hamas war

The CS pointed to a looming price surge linked to the ongoing Israeli-Hamas war in Gaza.

"I read an article that international prices could go to $150 per barrel because of the Israel-Hamas War, which would literally mean our products going to a high of Sh 300 per litre at the pump," said CS Chirchir.

According to analysts, the Israeli-Gaza war can impact global fuel prices in several ways. Firstly, Middle East is a major source of oil production, and conflicts in the region can disrupt oil supply chains, potentially leading to lower global oil availability. Secondly, these conflicts create market uncertainty, causing traders and investors to raise oil prices as a precaution.

In recent years, oil prices have been increasingly vulnerable to geopolitical tensions such as that in Russia and Ukraine, and the Gaza conflict has the potential to drive up prices significantly.

CS Chirchir, further stated that the government will continue with the government-to-government (G-to-G) oil deal with Gulf countries, Saudi Arabia and the United Arab Emirates to reduce fuel premiums and ease the pressure on the Kenyan shilling.

"If we didn't do what we did in Kenya, what Uganda and Tanzania is trying to do, I bet the dollar to the shilling would be way above Sh200," said the CS.

Also appearing before the committee were Country Manager for Kenya at the International Budget Partnership Abraham Rugo and Former Mandera Central MP Billow Kerrow who presented submissions on how to tackle the the rising cost of living.

Dr Rugo argued that the government should continue cutting down on both spending and taxation arguing that a lot can be saved by having a comprehensive review of state-owned enterprises which he argues gobble up resources and offer no returns.

Emphasizing the need for transparency and efficiency in managing these institutions. He noted that approximately 25-28 per cent of Ministry Department Agencies' (MDAs) expenditure is attributed to state corporations, which often operate with limited transparency.

Dr. Rugo's proposals included merging and selling some of these state-owned enterprises, emphasizing that they should operate on business models, turning a profit or facing closure. His recommendations were supported by the committee's co-chair Kimani Ichungw'ah.

"We can't continue to save companies that are not performing yet doing businesses," said Dr Rugo

Reading data from the Budget Policy Statement (BPS) 2023, Rugo submitted that there was an increase of Sh1.7 billion in the supplementary first budget in guaranteed debt to Kenya Airways which he argues should not continue being bailed out by taxpayers' money.

"During the review, the stock risk exposure according to, is estimated at 2.7 trillion where 2.66 trillion is from state-owned enterprises. This is from the National Treasury report... In other words, you are stuck with many structures that give you the highest risk with the least transparency," he stated.

Former Mandera Central MP Billow Kerrow, emphasized the need for rigorous cost-of-living impact assessments.

"We must review every policy and regulatory proposal in terms of its impact on the cost of living before cabinet and parliament," Kerrow said.

He also called for mandatory parliamentary approval of all loans before Treasury finalizes them, discouraging the approval of loans signed outside the country without consent.