Will Yatani Budget ease mounting consumer pain on Kenyan households?

Judith Wairimu, a single mother of six, has earned a living washing clothes in the sprawling Karagita slum in Naivasha for over seven years.

And even though her earnings were meagre, she was always able to provide her children with three meals a day. But not anymore!

Like her, many fellow poverty-stricken slum dwellers in Karagita where thousands of flower workers reside, are feeling the pinch of the high cost of food and other commodities, which have skyrocketed globally.

And Ms Wairimu, the sole breadwinner in her family, said she is unable to afford their upkeep.

“I am unable to buy cooking gas because its price has gone up beyond my reach,” she said capturing the feeling across many Kenyan households that have been pushed into a tight corner by ever rising costs of goods.

No longer able to bear with the cost pressure, Ms Wairimu recently resorted to using firewood for cooking. She is well aware of the safety to her family’s health the move portends, but said she has no choice.

“I have to choose between buying cooking gas or buying food. Life is difficult for us at the moment,” she added.

Kenyan families around the country have increasingly found it difficult to put food on the table in the face of unprecedented high prices.

These families are looking to Cabinet Secretary Ukur Yatani to soften a severe cost-of-living squeeze.

“The government has to do more to help us as we struggle with the rising cost of living,” said Ms Wairimu.

The prices of essential items, including soap, cooking gas, and cooking oil, have risen by up to a third in the past 12 months, straining household budgets.

Kenya National Bureau of Statistics (KNBS) data show that inflation rose from 5.08 percent in February to 5.6 percent in March on the back of a sharp increase in the prices of the essentials.

Biggest increase

Cooking gas recorded the biggest jump with a 13-kilogramme cylinder increasing 38 percent over the past year to an average of Sh2,866 in March, followed by cooking oil (35.15 percent), bar soap (20.88 percent), sukuma wiki (20.18 percent), and wheat flour (17.68 percent).

“Prices of food items in March 2022 were relatively higher compared with prices in March 2021,” KNBS said on Thursday last week.

Normally, the impact of rising consumer goods is dulled by salary increases. However, the increments by firms have not matched the rate of inflation.

The average earnings for workers in the private sector grew at the slowest pace in a decade in 2020 as pandemic-hit firms moved to slash salaries and adopt unpaid leave policies to contain costs.

Companies raised average monthly pay by 3.82 percent to Sh67,490 in the year ended June 2020, a steep drop from the 8.16 percent raise to Sh65,006 the year before.

This has forced many households, especially in the low-income segment, like Ms Wairimu’s to reduce their shopping basket as they look up to the government to ease their burden.

Despite several requests for comment on the measures lined up to relieve the pain of Kenyans , the National Treasury remained mum.

But analysts said one way the Treasury Cabinet Secretary (CS) can ease pain for households is by cutting taxes for workers and reducing tax on essential items.

Unregulated sector

In the case of cooking gas, costs of imports first jumped in the wake of the imposition of value-added tax (VAT), the recently following the Russian invasion of Ukraine, and coupled with the search for higher margins by dealers, these have pushed prices to their highest level in Kenya’s history.

“Sadly we remain an economy where the structural inequality within, and weak terms of trade without, mean our poor are hit disproportionately by economic volatility,” said Deepak Dave a senior advisor to Adventis Capital.

Unlike petrol, diesel, and kerosene prices, which are adjusted on 15th of every month and stay in place for one month, cooking gas prices are not controlled, leaving reducing tax as the only option available to Mr Yatani to ease the burden on Kenyans.

Cooking gas has become the preferred energy source for households in major towns due to its convenience and because it is cleaner than other cooking fuel.

Official data from the 2019 census shows that 53 percent of households in urban centres rely on it for cooking compared to 5.6 percent of those in rural areas.

“The range of options is limited to using lower duties, excise, and cess that are within Treasury’s control to reduce prices directly; this passes the burden back to a government with little fiscal capacity, but it is something,” said Mr Dave.

“However trying to shift that burden, the net loss, onto retailers and suppliers will just create shortages.”

Still, the government can offer reprieve by increasing the money in people’s pockets, which essentially means offering a tax cut or stipend.

“Or the Central Bank of Kenya (CBK) can try what has been tried in other countries, which is depress the exchange rate artificially to ease import costs, which is a strategy guaranteed to fail beyond a week or two, but is probably the only no-cash-cost option,” Mr Dave added.

The shilling has been under pressure against the American dollar, setting up the country for more expensive imports and debt servicing distress.

The CBK quoted the shilling at 114.95 to a dollar last Wednesday.

The costs of imports are tipped to rise further amid higher food and energy prices – a fallout from the war in Europe along with supply shortages – according to financial and economic experts.

Social safety net

The World Bank Group, and the International Monetary Fund have asked developing countries like Kenya and to strengthen the social safety nets to protect the most vulnerable citizens like Ms Wairimu.

“Governments should move quickly to contain economic risks. Building foreign exchange reserves, improving financial risk monitoring, and strengthening macro-prudential policies are vital first steps,” said Indermit Gill – the Vice President for Equitable Growth, Finance, and Institutions at the World Bank.

“It’s already clear that higher food and energy prices—along with supply shortages—will be the immediate inflictor of pain for low- and middle-income economies.”

But offering the social safety nets, as the Bretton Woods Institutions are urging, may be hard for a county that in a tight fiscal space with debt repayments taking up a big chunk of the revenues generated.

Fuel price subsidy

To ease pressure on consumers, lawmakers have already allocated Sh10 billion to the fuel subsidy plan.

Moving the Supplementary Appropriation Bill, Budget and Appropriation Committee chairman Kanini Kega said the shortage has been unprecedented and asked Members of Parliament to approve the allocation without delay.

“The crisis that we see in the world has not spared Kenya. Fuel prices in Kenya are a bit lower than in Uganda due to the fuel subsidy. In Uganda, a litre goes for Sh160 while in Kenya at Sh134,” Mr Kega said.

Mr Yatani will read the Sh3.31 trillion budget for the financial year starting July two months earlier than traditional time, paving the way for lawmakers to approve expenditure before their term ends.

Mr Yatani is expected to deliver the Budget Statement for the financial year 2022/23 early this month, marking the last expenditure plan for President Uhuru Kenyatta who will leave office after the August 9 elections.

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