While the government situation has attracted significant attention, it is just one player in the large economic landscape. Businesses and individuals are feeling the pain of hard economic times.
What people are calling debt distress is just but a symptom, with the underlying issue being income. Fundamentally, whenever interest rates are higher than growth in income, you have a recipe for debt distress.
Globally, soaring inflation is affecting economies badly. Reduced incomes and low purchasing power, coupled with low demand for products, are being witnessed across all sectors.
Financial instruments are priced according to risk. The risk market, especially in the financial sector, is highly influenced by perception. Sadly, Kenya's media is good at dramatising negative news. The forex losses, which are escalating production costs, can be blamed on how negatively we are painting ourselves.
You can see this with how foreign investors are fleeing Kenya. The exit due to general uncertainty has led to the weakening of the Shilling against foreign currencies, further impacting the risk perception.
Secondly, government securities, usually considered low-risk instruments experience capital on flow whenever there is detection of uncertainty. This hurts private sector lending rates. In response, private sector demand pushes the interest rates higher to outperform the low-risk yield to government and the spiral continues.
On incomes, apart from the government, which we all know has challenges with revenue collection, businesses are also grappling with revenue generation, driven by low demand for goods and services. The increased costs, including forex losses, are eroding their profit margins.
At the individual level, many are experiencing difficulties in generating income. The inflation rate in Kenya, for instance, stood at 6.92 per cent in October. In the US, the rate is now at 3.1 per cent.
To deal with this menace central banks intervene with interest rate adjustments. The global trend of rising interest rates is evident with the Federal Reserve increasing its rates from 3.5 per cent to 5.5 per cent in November compared to the previous year.
CRBs serve as repositories of credit information with over 20 million individuals and 700,000 businesses in Kenya who have borrowed from credit providers being in the CRBs.
The number is increasing everyday as businesses and individuals access loan products and other credit services in the market.
The increase in the number of profiles in the CRBs is a good thing for the economy, credit is a catalyst in an economy. It demonstrates increased access to financial services. Formal credit, which now certainly requires CRB checks, allows one to access what they need even if they don't have money.
It stimulates demand for goods and services and creates business opportunities for job creation. The role of CRBs in credit transactions is so important that most institutions today cannot process a loan or credit line without checking the CRB score or credit rating of a business or individual.
While Kenya's economy is diversified, the sources of our shocks are cross-cutting. Disruptions in supply chains, geopolitical conflicts such as the Ukraine-Russia and Israeli-Hamas wars, and nation-state policies such as the rise of right-wing politics the world over have consequences.
Kenya's economy, like all other economies, goes through boom and bust cycles influenced by human activities.
Humans react to their situations. The reality is that we have already recognised our current downturn and government, businesses and individuals have started to act correctly.
We have started to allocate resources wisely and innovate low-cost high-return solutions. We now prioritise investments in areas with the highest impact and return. Most individuals and businesses have started retooling and refocusing.
Going forward, effective governance is pivotal for survival and future prosperity, requiring actions aligned with the realities of the time. Our governance system should always be responsible and quick in action. We got where we are because we delayed making the right decisions early.
