Cabinet to approve cash subsidy for poor families

The Cabinet is this morning expected to pass a resolution that will see thousands of vulnerable households get monthly allowances in what is Kenya’s first ever cash-based social safety net programme.

Some Sh600 million will be used to guarantee the very poor households a constant supply of food in Nairobi, Kisumu and Mombasa.

Initially, 200,000 vulnerable families will get Sh1,500 monthly handouts in a programme modelled on similar schemes in Brazil, Chile, Ethiopia, Ghana and South Africa, where the poor draw monthly subsistence allowances.

It comes a few months after the government rolled out a maize subsidy scheme late last year as an acute supply shortage pushed the price of staple maize flour beyond the reach of many low-income households.

Execute plan

The monthly cash handout plan is expected to pile pressure on the government for upward adjustment of this year’s Sh860 billion budget in the coming years as the programme is expanded to more households.

Initially, the social welfare payments will cover 100,000 households at a cost of Sh1.2 billion until June next year.

That means Treasury will in March ask Parliament for supplementary funds to execute the plan.

If expanded to cover 200,000 families in the next financial year, the social safety net programme would require Sh3.6 billion a year to execute.

Treasury has this year allocated Sh2 billion for drought relief and planned to spend Sh1 billion on a food subsidy scheme targeting vulnerable people.

Prime Minister Raila Odinga said the government will use the existing cash transfer systems such as mobile phone based platforms to reach 100,000 poor families in Nairobi’s low income settlements of Mathare, Korogocho, Mukuru and Kibera slums starting this month.

An additional 100,000 poor families in Kisumu and Mombasa will be enrolled in the programme in March next year.

“The beneficiaries will be identified through community participation,” Mr Odinga said, adding that the Gender ministry would handle the disbursements in the pilot phase.

Analysts reckoned that the plan though positive is fraught with the danger of pushing public expenditure beyond the point that the economy can support, and could be overly wasteful if not guarded against corruption.

“The intention is good but concerns over the ballooning public expenditure must be taken into account. Such social protection plans have succeeded elsewhere including in India, but only when deliberate steps are taken to keep corruption out of it,” said Kwame Owino, an analyst with the Institute of Economic Affairs.

Kenya is rolling out the cash disbursement programme at a time when the global financial crisis has thinned out donor financing leaving it to rely more on the domestic market for funds to meet its obligations.

In recent months as a persistent drought left the country with an acute food shortage, millions of Kenyans have found it difficult to access basic food needs – forcing the government to think of alternative means of protecting the most vulnerable households.

Kenya Food Security Steering Group, an Office of the President based research unit, says about 10 million people are food insecure.

It has estimated that the government needs Sh26 billion to feed about 3.8 million most vulnerable people between September 2009 and February next year.

The Kenya Red Cross says 2.5 million people are most vulnerable to the drought and could starve in the coming months if not supported with daily supplies of water and food.

Despite the rising needs, dwindling stocks at the National Cereals and Produce Board has increasingly made it difficult for the government to offer food subsidies making it necessary to change tack.

The board has only 2.5 million bags of maize in the silos against 32 million bags required every year.

The Cereals Board forecasts that it could buy and store eight million bags before end of the year.

Analysts said offering cash handouts to the poor is likely to run into trouble in the coming months as government revenue streams thin out in a challenging economic environment.

The Kenya Revenue Authority, which collects taxes on behalf of the government, has had mixed performance in the past 12 months.

It opened the July-September quarter— its first quarter for 2009/10 financial year with below par performance having fallen short of its Sh128 billion revenue target by Sh4 billion.

This shortfall, which has been blamed on runaway inflation and difficulties in the business environment, especially in the country’s commercial capital Nairobi where water and power rationing programme lasted five months beginning May, leaves the state in a tighter financing position for this year’s Sh860 billion budget — the largest ever in Kenya.

Inflation stood at 17.9 per cent last month having risen from 17.8 per cent in July to 18.4 per cent in August 2009 and to 17.9 per cent in September.

The average inflation rate for the July-September quarter was 18 per cent.

A new geometric computation however indicates that monthly inflation fell from 17.9 per cent in September to 6.6 per cent in October but consumers are still finding it difficult to buy their food, pay electricity and water bills and meet transport costs.

The government now says the people who are unable to meet their basic food needs will withdraw Sh1,500 from the Exchequer to mitigate the high cost of living.

Worried that the cost of running the subsidy would spiral because of disbursement of small amounts of money to thousands of households Mr Odinga said only 30 per cent of the total amount earmarked for the poor will go to administration.

The balance of 7 0 per cent will go directly into supporting needy people by providing the cash on a monthly basis to meet their necessities.

The plans to allocate the needy monthly cash rations is based on a report by a government taskforce that recommends well targeted food subsidy scheme for Kenya’s poor.

The task force was established in February following approval by the Cabinet.

It reviewed and analysed the current maize flour subsidy arrangements for people living in low income neighbourhoods and developed the report to be used by the government as a guide to establishing a social welfare programme aimed at ensuring equality in Kenya.