Over the past couple of months, the rising cost of living has been a global crisis given the ripple effects of Covid-19 and the Russia-Ukraine war invasion disrupting the global supply chains.
The Kenyan government has been taking substantial efforts to curb the rising cost of food. The unga subsidy last year was a great initiative but not sustainable as it cost Kenya sh7 billion, sinking the country deeper into debt. The current fertilizer subsidy coupled with the rains is likely to increase food production. However, the question remains, is this sustainable? In this article, I would like to give you my opinion on the matter, looking at possible solutions to the issue of the rising cost of living in Kenya.
A reduction in taxes on fuel, electricity, and food will go a long way in encouraging investment which in turn improves productivity. Investors are affected by unpredictable tax systems and multiple tax mechanisms that are imposed on commodities. Having surpassed the Two Trillion mark of tax collection for the Financial Year 2021/2022, Kenya Revenue Authority (KRA) looks to double that to Kshs. 6.831 Trillion by end of the Financial Year 2022/2023. This has called for improvement in tax collection. Rather than increasing taxes on food and essential commodities, the state agency should broaden the tax base by finding loopholes in its systems and improving tax administration. This way, the country can raise enough revenue to finance its expenditure and reduce its reliance on costly subsidies.
An increase in interest rates by the Central Bank. This has been evident over the past few months, now standing at 9.5%. As much as this is increasing the cost of borrowing making both credit and investment more expensive, it is a powerful tool to slow down the economy. The country has faced some substantial inflationary headwinds due to global economic shocks. March 2023 inflation rate stands at 9.2% which is close to double March 2022 inflation rate which stood at 5.6%. Kenya has recorded the highest cost of living since 2017. If the Central Bank increases the interest rates, the money supply will go down and commodity prices may go down as well.
The government should focus on increasing per capita income. This means that if Kenyans have more money in their pockets, we might just not hear so many complain about the rise in food prices, to say the least. Reports show that in 2022, 17% of Kenya’s population lived below 1.90 U.S. Dollars per day and 8.9 Million Kenyans lived in extreme poverty, the majority of whom live in rural communities. Considering the high rate of unemployment and underemployment, the government can create a favorable business environment, implement policies that encourage entrepreneurship, and invest in adaptability to the changing labor market need. This way, more jobs can be created and the economy can grow. It may not be an instant solution but it may get many Kenyans out of extreme poverty to earn a decent income.
Kenya, like many other countries around the world, is facing some tough economic times. If the government focused on curbing inflation, increasing per capita income, and reducing taxes on commodities to encourage investment, this will go a long way in ensuring that we get rid of extreme poverty and the cost of living becomes bearable such that ordinary Kenyans can afford the basic needs and live decent lives.
The Kenyan Economic Journal 