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Will Yatani’s budget alleviate growing consumer pain in Kenyan households?


Treasury Secretary Ukur Yatani holds the briefcase containing the budget for the financial year 2021/22 in front of the National Treasury on June 11, 2021. FILE PHOTO | NMG

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Summary

  • Prices for essential items, including soap, cooking gas and cooking oil, have risen by up to a third in the past 12 months, straining household budgets.
  • Data from the Kenya National Bureau of Statistics (KNBS) shows that inflation rose from 5.08% in February to 5.6% in March due to a sharp rise in the prices of basic necessities.
  • Normally, the impact of rising consumer goods is mitigated by wage increases. However, increases by companies have not matched the rate of inflation.

Judith Wairimu, a single mother of six, has been making a living doing laundry in the sprawling slum of Karagita in Naivasha for over seven years.

And even though her income was meager, she was still able to provide her children with three meals a day. But not anymore!

Like her, many other residents of the impoverished slums of Karagita, where thousands of horticulture workers reside, are feeling the pinch of the high cost of food and other basics, which has exploded globally.

And Ms Wairimu, the sole breadwinner in her family, said she was unable to afford their upkeep.

“I am unable to buy cooking gas because its price has risen beyond my reach,” she said, capturing the sentiment of many Kenyan households who have been pushed into a difficult situation. by the ever-increasing cost of goods.

Unable to bear the cost pressures any longer, Ms. Wairimu has recently resorted to firewood for cooking. She is well aware of the security the move brings to her family’s health, but said she had no choice.

“I have to choose between buying cooking gas or buying food. Life is difficult for us right now,” she added.

Kenyan families across the country are finding it increasingly difficult to put food on the table in the face of unprecedented high prices.

These families are looking to Cabinet Secretary Ukur Yatani to ease severe pressure on the cost of living.

“The government must do more to help us as we battle the rising cost of living,” Ms Wairimu said.

Prices for essential items, including soap, cooking gas and cooking oil, have risen by up to a third in the past 12 months, straining household budgets.

Data from the Kenya National Bureau of Statistics (KNBS) shows that inflation rose from 5.08% in February to 5.6% in March due to a sharp rise in the prices of basic necessities.

The biggest increase

Cooking gas recorded the biggest jump with a 13-kilogram cylinder rising 38% over the past year to an average of 2,866 shillings in March, followed by cooking oil (35.15% ), bar soap (20.88%), sukuma wiki (20.18%). ) and wheat flour (17.68 percent).

“Food prices in March 2022 were relatively higher compared to March 2021 prices,” KNBS said on Thursday last week.

Normally, the impact of rising consumer goods is mitigated by wage increases. However, increases by companies have not matched the rate of inflation.

Average earnings for private sector workers grew at the slowest pace in a decade in 2020 as companies hit by the pandemic decided to cut wages dramatically and adopt unpaid leave policies to contain costs.

Companies increased the average monthly wage by 3.82% to 67,490 shillings in the year ending June 2020, a sharp drop from the 8.16% increase to 65,006 shillings the year former.

This has forced many households, especially in the low-income segment, like Ms Wairimu’s, to cut back on their shopping basket as they look to the government to ease their burden.

Despite several requests for comment on the measures planned to ease the pain of Kenyans, the National Treasury has remained silent.

But analysts said the Cabinet Secretary to the Treasury (CS) could ease the pain for households by cutting taxes on workers and lowering taxes on essential items.

Unregulated sector

In the case of cooking gas, import costs first jumped in the wake of the imposition of Value Added Tax (VAT), recently after the Russian invasion of Ukraine, and combined with the Seeking higher margins by dealers, they have pushed prices to their highest level in Kenyan history.

“Unfortunately, we remain an economy where structural inequality internally and weak terms of trade externally mean that our poor are disproportionately affected by economic volatility,” said Deepak Dave, adviser principal of Adventis Capital.

Unlike petrol, diesel and kerosene prices, which are adjusted on the 15th of each month and remain in place for a month, cooking gas prices are unchecked, leaving tax reduction as the only option available for Mr. Yatani to ease the burden on Kenyans.

Cooking gas has become the preferred energy source for households in large cities due to its convenience and because it is cleaner than other cooking fuels.

Official data from the 2019 census shows that 53% of households in urban centers depend on it for cooking, compared to 5.6% of those in rural areas.

“The range of options is limited to using lower tariffs, excise and taxes that are under the control of the Treasury to directly reduce prices; it shifts the burden to a government with little fiscal capacity, but it’s something,” Dave said.

“However, trying to shift that burden, the net loss, onto retailers and suppliers will only create shortages.”

Yet the government can offer a reprieve by increasing the money in people’s pockets, which basically means offering a tax cut or an allowance.

“Or the Central Bank of Kenya (CBK) can try what has been tried in other countries, which is to artificially depress the exchange rate to alleviate import costs, which is a strategy guaranteed to fail in the longer than a week or two, but that’s probably the only no-cost option,” Dave added.

The shilling came under pressure against the US dollar, pushing the country into more expensive imports and struggling debt service.

The CBK quoted the shilling at 114.95 to the dollar last Wednesday.

According to financial and economic experts, import costs are set to increase further due to rising food and energy prices – consequences of war in Europe and supply shortages.

Social safety net

The World Bank Group and the International Monetary Fund have called on developing countries like Kenya to strengthen social safety nets to protect the most vulnerable citizens like Ms. Wairimu.

“Governments must act quickly to contain economic risks. Building foreign exchange reserves, improving financial risk monitoring and strengthening macroprudential policies are essential first steps,” said Indermit Gill, Vice President for Equitable Growth, Finance and Institutions at the Bank. world.

“It is already clear that rising food and energy prices, along with supply shortages, will be the immediate source of suffering for low- and middle-income economies.”

But providing the social safety nets, as urged by the Bretton Woods institutions, can be difficult for a country that finds itself in tight fiscal space, with debt repayments absorbing much of the revenue generated.

Fuel Price Subsidy

To ease the pressure on consumers, lawmakers have already earmarked 10 billion shillings for the fuel subsidy scheme.

Introducing the Supplementary Appropriations Bill, Budget and Appropriations Committee Chairman Kanini Kega said the shortage was unprecedented and called on MPs to approve the allocation without delay.

“The crisis we see in the world has not spared Kenya. Fuel prices in Kenya are somewhat lower than in Uganda due to the fuel subsidy. In Uganda, a liter is 160 shillings while in Kenya it is 134 shillings,” Mr Kega said.

Mr Yatani will read out the 3.31 trillion shilling budget for the fiscal year starting in July two months earlier than traditional time, clearing the way for lawmakers to approve spending before the end of their term.

Mr Yatani is due to present the budget report for the 2022/23 financial year early this month, marking the latest spending plan for President Uhuru Kenyatta who will leave office after the August 9 elections.

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