Has economic focus already shifted to the 2027 elections?

Traders at Wakulima Market in Nairobi. [File, Standard]

This year and 2027 are likely to be economically different from the previous three years of the Kenya Kwanza government. You may have noticed that if you are a keen observer, government projects ranging from roads to houses are in full throttle.

And interest rates are falling too. That should not surprise us, its penultimate year to elections. Despite the feeling that economic forces are overwhelming and random, we can discern some patterns

In the last three years, the feeling among the populace is that things are economically bad. That has political implications next year. What if the economy turns around in the next two years and we feel it in our pockets? 

The government has two trump cards: the monetary and fiscal policies. Let us start with the monetary policy, and more about the interest rates. Remember the monetary policy committee chaired by the Central Bank (CBK) governor?

By cutting the CBK rate, banks take the cue and adjust their lending rates. CBK rate is the interest rate CBK charges banks for borrowing from it. It signals to banks to either lower or raise their lending rates.  We borrow more at lower rates, creating demand for goods and services. We don’t borrow to keep the money in our pockets or under the mattresses; we spend it.

We used to keep school fees at the bottom of our socks, no safer place in the age of no M-Pesa. We have come from far. Such demand creates jobs and puts money in our pockets. Simply put, it leads to economic growth.

The downside is inflation, but most citizens would rather worry over inflation with some money than no inflation without any money, the current feeling. 

Let’s digress; noted the frequent “attacks” on the Federal Reserve Bank (US Central Bank) chair by President Trump for not lowering the interest rates? It’s construed as an attack on the independence of the central bank.

We have rarely seen our president at loggerheads with the CBK governor. Does that signify its independence? Trump knows the stimulative effect of interest cuts, particularly in a developed country.

In Kenya, the cuts tend to be sticky. Heard the CBK complaining that the lending rates are not going down after the CBR cut? 

The other stimulative effect is fiscal policy - government spending and taxes. John Keynes ghosts still haunt us. By spending, the government create demand for goods and services, leading to economic growth.

This is usually focused on big “visible “projects that yield political dividends. The fiscal policy is more muted compared with monetary policy. When we borrow, few know about it, except when investing the money or spending it.

Between, it’s easy to know when men have money; they usually “round it off.” E.g a loan of Sh57,000 will be rounded off to Sh50,000 through entertainment.

The big question is where the government gets money to spend. It either borrows or taxes us. It also gets grants or aid from other governments. 

The hard truth is that we are unlikely to stop borrowing to fund the projects. More taxes would mute the economic optimism arising from interest rate cuts and big government projects.

Ever wondered why such projects are rarely in services like education and health? We have an expressway and a superhighway. What’s the equivalent in health and education? We shall not get tired of asking that question. 

 A tax cut would be stimulative, too. But in the tight fiscal space, that is unlikely. That also explains why borrowing is likely to continue growing. 

Economic growth is driven by the invisible hand of the market and the visible hand of the government. The latter will be more visible in the next two years. 

Political dividends

We can’t forget the external factors like wars far away, economic cycles elsewhere, natural disasters like droughts and our sentiments, what we feel about the future. But the economic focus will be mostly inward as we race towards the 2027 polls. The big question is if the economic stimulus will pay political dividends, read more votes.

In a poll that is won by less than 300,000 votes, any shift in positive sentiments would make all the difference. We also easily forget our suffering, why else do we get second and third-borns?

If the economy turns around in the next two years, we shall forget our suffering. The Kenya Kwanza government can easily argue that things can only get better if they get a second chance. Remember, we are easy to hypnotise. Remember the hustler narrative?  

The 2022 polls were about economics, and so will be the 2027 elections. The government seems too aware of that and is unlikely shy away from flexing its economic muscles.

Will my village, name not disclosed for security reasons, finally get a tarmacked road courtesy of the stimulative power of the government?

We have been waiting for 131 years since Kenya became a British protectorate and got a semblance of a nation.