The escalating cost of living in Kenya is a major concern and requires urgent attention. In order to effectively combat this problem, the Kenya government should implement various strategies and policies. One of these measures should involve a reduction of taxes on necessities such as fuel, electricity and food. In doing so, this would encourage investment and economic growth, as investors are usually deterred by high taxes and unpredictable tax systems, reducing these taxes would also provide the government with more revenue for other government expenditure, and reduce its reliance on costly subsidies.
The government should also increase investments in the agricultural sector. Kenya’s agricultural sector is estimated to be worth Ksh. 6,000 billion and provides employment to over 30% of the population. Despite this, the sector has for a long time been neglected and underutilised. Investing in the agricultural sector would promote job creation, aid development and contribute to an overall reduction in the cost of living. Moreover, it is an area that Kenya has a comparative advantage as the country enjoys a favourable climate for agricultural production.
In addition, the government should provide access to credit facilities and subsidies to small scale farmers in Kenya. Small scale farmers are the backbone of the Kenyan agricultural industry and are vital to economic growth. However, they often lack access to capital to purchase the necessary inputs for production, due to high interest rates charged on loans by financial institutions. Providing subsidies and access to credit facilities would help small scale farmers produce food more efficiently, increasing production, and reducing the cost of living.
Finally, the government should also invest in various infrastructure projects as a means to reduce the cost of living. Kenya has engaged in a number of infrastructure projects over the past few years, such as the construction of the Standard Gauge Railway (SGR) from Mombasa to Nairobi and Nairobi to Kisumu. Such projects reduce transport costs for inputs, labour and commodities. As a result, this could lower the cost of living in the country, as commodities will become more readily available and cheaper.
These strategies are some of the measures that can be implemented in order to tackle the rising cost of living in Kenya. By working together, the Kenya government, the citizens and various stakeholders.
The Central Bank of Kenya has recently shown an increase in interest rates, now standing at 9.5%. This increase has made borrowing and investment more expensive, yet is a powerful tool to slow down the Kenyan economy. The country has experienced a large inflationary rise since March 2022, when the inflation rate was 5.6%. It has now risen to 9.2%, the highest cost of living since 2017.
In order to address this issue, the Central Bank has implemented increases in interest rates to tighten the money supply and consequently reduce inflation. While this method of controlling inflation has always been the norm, it affects consumer spending and investor confidence. With the cost of borrowing increasing, the availability of credit decreases, and financial costs become harder to justify. Moreover, the depressed consumer demand and higher costs of investment that come with increased interest rates could discourage new investments and thereby reduce economic growth.
However, interest rate increases by the Central Bank need to be viewed in the broader economic context. As of 2022, 17% of Kenya’s population lived below the international poverty line, and 8.9 million Kenyans lived in extreme poverty. This means that raising interest rates, which leads to rising costs of consumer goods, is not an adequate solution. Instead, the government should prioritise increasing the per capita income of Kenyans, particularly through job creation and investment in a positive business environment where entrepreneurship can be encouraged.
This may not be a quick solution to minimising inflationary pressures, but it goes far beyond the traditional means of increasing interest rates. It will also provide new income for Kenyans, allowing them to partake in the wider economy and be sheltered from falling into poverty. It will also boost consumer demand, ensuring that the economy continues to grow and that there are opportunities for future investments.
In conclusion, the Central Bank can use interest rates to combat inflation, but they are only one part of the puzzle. To fully ensure economic stability and reduce poverty, the focus should be shifted towards widening economic opportunities, encouraging investment and creating jobs. This way, the goal of sustainable economic growth and prosperity can be achieved.
Kenya’s Economic Struggles in a Global Setting
The economic state of Kenya is a difficult scenario for a country whose economy is one of the biggest in Africa and has developed significantly over the past decades. As other countries worldwide struggle to overcome the impact of an unprecedented Covid-19 crisis and freeze economic activities, Kenya continues to battle with economic woes.
Inflation, the cost of living, per capita income, and taxes have been pivotal in the nation’s rise and seemingly have become a stumbling block in achieving complete economic freedom. Kenya must with bold steps address these economic issues to ensure that its citizens have access to decent lives and fair opportunities.
Before the pandemic, Kenya was experiencing a sharp rise in inflation surpassing the 6.5% target which was set by CBK. This rate is of particular significance because it affects the purchasing power of households and companies in the country. The inflation rate has forced the government to introduce measures such as the ad-valorem tax on goods and services to reduce pressure on the state revenues. Further, inflation restricts investments and business startups, precisely where Kenya needs to stimulate the economy.
This is a nation where the per capita income measures the living standards of its citizens, and holds the limits for the poverty threshold. The vast differences between the rich and the poor—with the richest 2% owning over 25% of the nation’s wealth—are indicative of how far Kenya has yet to go. The Economic Survey of 2020 shows that there was a slight decrease in poverty levels, with an 8% reduction since 2015. However, this small shift was achieved with a 4% increase in income inequality.
The struggles of Kenyan households today are tied closely with the instability of wages and the difficulty to find employment. As the government focuses its efforts on curbing inflation and improving economic opportunities, only then can its citizens have access to dignified wages and stability. Accessories like medical insurance, retirement benefits, and stable housing are factors that help with this.
Extensive tax reforms must take place in order to promote business activities and encourage citizens to start up enterprises. The State’s Public Finance Management Act will seek to remove some taxes on goods and services.
The rising cost of living in Kenya is a major concern and requires urgent attention. In order to effectively combat this problem, the Kenya government should implement various strategies and policies, such as investing in agriculture, promoting entrepreneurship, and encouraging foreign investment. With a concerted effort, the government can help to improve the standard of living for all Kenyans.