President William Ruto will face the nation tomorrow at a time there is an economic crisis but his financial advisors are still optimistic about the impact of the recent government reforms.
According to Deputy Governor of the Central Bank, Susan Koech, the government reforms have been “successful” in stabilising the economy, despite the high cost of living.
Similarly, State House’s top economic advisor David Ndii, has suggested that the crisis is a necessary part of the process of rebalancing the economy, and Kenyans must be prepared to endure some short-term pain to achieve long-term gains.
Dr Ndii said: “Kenyans have to bite the bullet” through unpopular economic reforms in the absence of which the country would face economic collapse.
“We believe what we are doing is working,” he said while terming the cost of living crisis as “withdrawals syndrome” for the rebalancing of the economy.
Ndii assured that Kenyans will realise full effects of the economic reforms in the fullness of time. “The fact that people are feeling the pain means the adjustment is happening,” he said.
A section of Kenyans yesterday told The Standard that they see no improvement in day-to-day life after months of price rises under the new Ruto government.
Tax reforms implemented by the government, with the support of the International Monetary Fund (IMF), have been criticised for exacerbating the cost of living crisis. These measures aim to address Kenya’s budget and balance of payments deficits, which have been compounded by heavy debt obligations.
The removal of fuel subsidies, a crucial component of the IMF agreement, has been particularly burdensome, resulting in higher transportation costs and increased prices for nearly all goods.
The unprecedented fuel prices have also had a detrimental impact on the living standards of millions of Kenyans. The sustained high fuel prices have had a ripple effect on the cost of living and business operations in the country, leading to increased prices for goods, household energy bills, and transportation.
This has posed an economic and social headache for President William Ruto at a time when hard-pressed Kenyans want his administration to address the cost of living.
The Kenya Kwanza government has shown a strong interest in implementing new tax increases rattling its support base and stoking tensions amid the high cost of living. The platform on which Ruto government was elected aimed at uplifting low-income earners, commonly referred to as hustlers.
The Ruto government has implemented a set of contentious taxes, including a 100 per cent increase in value-added tax on fuel to 16 per cent, and the implementation of a 1.5 per cent surcharge to finance the construction of affordable housing.
It is now feared that rising levies and taxes could dampen economic growth prospects as firms shelve expansion plans, including plans to hire.
Despite a round of fuel price hikes and a currency crisis, the CBK deputy boss Susan Koech, highlighted the decrease in inflation, which is a measure of the cost of living. Inflation has dropped from a peak of 9.6 percent in October 2022 to 6.9 percent in October 2023, falling within the government’s target range.
She attributed the decline to the monetary measures implemented by the CBK, favourable weather conditions leading to lower food prices, and government initiatives such as zero-rating key food imports and subsidizing fertiliser prices to enhance food production.
Koech emphasized that the Ruto government’s policy measures, including fiscal consolidation and stabilising public debt, are contributing to macroeconomic stability and economic growth. The CBK deputy governor and Ndii, spoke in Nairobi, yesterday, at an economic forum organised by the NCBA Group.
“The CBK expects the economy to grow by 5.5 per cent in 2023 and close to 6.0 per cent in 2024 supported by a rebound of the agriculture sector, resilience of the services sector and impact of government measures aimed at stimulating growth in priority sectors of the economy including in agriculture and the manufacturing sector,” said Koech.
However, to help curb effects of the austerity measures and inflation, Dr Rose Ngugi the Executive Director of the Kenya Institute for Public Policy Research and Analysis (KIPPRA) asked the Ruto government to put in place targeted safety net programmes.