NYANDEMO: Time to focus on pro-growth economic policies

The rapid shrinking of Kenya's relationship with its neighbours is an issue of concern to many citizens. There is also the erosion of investor confidence occasioned by poor tax policies, erosion of human rights and pronouncement of intentions to discard court orders and rapid depreciation of the local currency against major currencies and increased interest rates.

The above situation has been aggravated by a demotivated workforce whose disposables incomes have been depleted, thus worsening the environment of doing business and the propensity to consume and save.

The situation seems to be getting worse by mass government wastage, unplanned government spending, huge bending bills, creation of amorphous positions in the gesture of rewarding political sycophants unconstitutionally thus leading to a bloated wage bill. The situation is worsened by foreign investors pulling out due to eroding investor confidence

Currently, an analysis by the Kenya National Bureau of Statistics shows that the prices of basic goods have gone up by as much as 40 per cent, with equally increased prices of fuel and other energy resources due to the removal of subsidies and increase of VAT from eight per cent to 16 per cent.

Such a move has drastically affected negatively various sectors since fuel permeates across all sectors of the economy be it be transport, manufacturing and the all production chain.

The other key issues being debated is the rapid depreciation of the Kenyan shilling, particularly to the American dollar. This has resulted not only in the draining of the purchasing power of consumers but also their savings. The steep decline in value of the the shilling is causing negative ripples through the the country’s economy.  This is equally seen to be compounding financial distress in the backdrop of increased cost of living.

The issue of CBK raising the lending rate by a significant 200 basis points from 10.5 per cent to 12.5 per cent with a purported intention of easing pressure on the exchange rate seems to be counterproductive. On the count rally it has made the cost of borrowing to go up drastically. Such a move has hampered financial borrowing from various financial institutions.

The unprecedented level of borrowing by the Ruto government is equally raising a lot of debate amongst Kenyans. This is likely to lead to debt overhang resulting in the country being declared credit unworthy.  With a situation where Kenya is wobbling dangerously in the fringes of a public debt overhang, lenders will start tightening their lending conditions.

Given the above situation, the government should rethink critically and work out alternative measures that will distribute the tax burden equitably guided by the canons of taxation prescribed by Adam Smith. Thee focus should be on high-impact sectors, boost resource mobilisation and enact pro-growth policies. 

Senior lecturer, Department of Economics and Development Studies at the University of Nairobi