Kenya to experience prolonged financial stress, new data shows

By Steve Umidha

Economists have expressed anxiety that the financial turmoil rocking key regional markets including Kenya, may delay or derail post-Covid 19 reforms aimed at boosting competition and growth.

In its mid-year economic review, Fitch Solutions – a credit research firm affiliated to Fitch Ratings, warned that the looming general elections slated for August 9, will likely hurt the country’s fiscal health, noting that growth will return “close to trend, but vulnerabilities will remain.”

“Elevated price pressures following Russia’s invasion of Ukraine has led to increases in inflation in many major markets but only sporadic protests thus far. However, political tensions have risen in East and Central Africa,” notes the firm in its latest survey which netted the Sub-Saharan region.

Key political outfits – the Azimio La Umoja-OKA and the Kenya Kwanza coalitions have all vowed to shore up the middle class, review taxes on the common man, lower electricity costs and restructure the country’s debt portfolio among other issues, in what observers believe will be one of the constricted races the country has seen yet.

The Alliances’ bigwigs Orange Democratic Movement (ODM) leader Raila Odinga and the United Democratic Alliance- Party (UDA) leader William Ruto, are widely expected to go head to head in the August polls with both looking to address the tough economic conditions and unemployment crisis that continue to hamper the country’s growth plans.

Key food items such as cooking oil, maize flour, milk and wheat products have noticeably skyrocketed since the year began, straining the majority of Kenyan households that are still dredging from the economic hardships left by Covid-19.

The pandemic – presently on its fourth wave in Kenya, triggered an unprecedented global economic recession in modern history and is measured as a crisis of greater magnitude than the Great Depression of the 1930s.

But the invasion of Ukraine by Russian troops in February this year, has compounded the struggles by businesses who have been compelled to pass on the additional costs of production to the consumer.

The war’s impact has left behind logistical nightmares across the global supply chain, triggering abnormal inflationary pressures not only regionally but also across the world.

Kenya’s inflation rate for instance, accelerated to 7.1 percent in May, from 6.5 percent in the previous month – the highest reading since February of 2020, as the cost of food products continued to rise sharply.

Consumer inflation quickened for the fourth consecutive month hitting a high of 6.5 percent in April, up from 5.6 percent in March with the Kenya National Bureau of Statistics (KNBS) noting that such a rise was the highest seen for more than eight years.

Inflation – which is the rate at which the value of a currency is falling and, consequently, the general level of prices for goods and services is rising, has continued to build upon account of rising oil prices triggered by the ongoing war and its direct impact of a weaker currency via imported inflation.

The Shilling against the US dollar exchange rate transacted at Sh117.96 at the close of NSE -trading yesterday in what has been a consistent but perturbing dip in its value against major currencies.

As a result of the political tensions across the region, the firm believes that governments will go on board in prioritizing fiscal consolidation as well as an acceleration in monetary policy tightening amid rising inflationary pressures.

“Kenya’s FY2022/23 (July-June) budget projects a narrowing of the deficit to 6.2 percent of GDP from an official estimate of 8.1 percent in FY21/22. Ghana, which uses calendar years, expects the fiscal shortfall to narrow from 9.3 percent of GDP in 2021 to 7.4 percent in 2022, in part because of revenue-raising measures such as an e-levy,” reads the report in part.

While reading the 2022/23 budget, Treasury Minister Ukur Yatani, noted that the country’s fiscal deficit would narrow to Sh862. 5 billion which is 6.2 percent of the country’s GDP in the 2022/23 fiscal year.

Public debt stock hit Sh 8.6 trillion at the close of June 2022 and is expected to rise to more than Sh9. 5 trillion next June.