Fiscal consolidation steps to hurt Kenya’s poor – report

Tuesday, January 24th, 2023 09:00 | By
Fiscal consolidation steps to hurt Kenya’s poor – report
Fiscal consolidation steps to hurt Kenya’s poor – report

The ongoing fiscal consolidation measures by the government will hurt most of the three million Kenyans living below the poverty line, the Institute of Public Finance (IPF) has noted in a new report.

Daniel Ndirangu, IPF’s Country lead and head of programmes said fiscal consolidation measures that intend to reduce the government’s deficits and debt accumulation will end up taxing the informal sector and cut expenditure on social protection programmes, drawing users of these services into more poverty.

According to Ndirangu, more than 25 per cent of Kenyans still leave below $2.5 dollars (Sh310). Kenya had over 12 million households, according to the last census done in 2019. The majority, some 7.4 million, lived in urban areas, while 4.7 million dwelled in rural zones.

The gravity of the matter was brought to the fore recently when 50 families from the sprawling Nairobi’s Kibra informal settlement quit the capital for their rural villages to eke out lives. 

“The informal sector is mainly driven by the poorer households. If the government goes for them without considering the implications on their ways of life like affording food, school fees and healthcare, then it might sink them into more poverty,” said Ndirangu.

He was speaking yesterday when IPF launched its report titled Macro-Fiscal Analytic snapshot 2022/23. The report was released in collaboration with Oxford Policy Management (OPM). Also present was IPF Chief Executive Officer, James Muraguri.

Ndirangu also said cutting down expenditure on social protection will expose the less financially privileged to economic shocks during these times of economic instability.

Commercial borrowing

In a bid to rein in Kenya’s public debt estimated at Sh8.7 trillion as of October 2022, President Willian Ruto has pledged to curb expensive commercial borrowing in favour of cheaper sources like the World Bank to reduce debt servicing and rump up domestic tax collections.

Debt servicing currently stands at 54 per cent of domestic revenues. National Treasury said it will spend Sh1.4 trillion to service the national debt by June 2023. Ruto’s administration targets to collect Sh4.8 trillion by June 2027 by weeding out tax cheats by linking its tax collection systems to mobile financial platforms.

In the next fiscal year, the government intends to collect Sh2.9 trillion from domestic taxes, including Sh2.8 billion from the informal sector. O

ther fiscal measures the government has proposed to cut the national debt include reducing its current expenditure by Sh300 billion, and boost revenue collection, as well as cutting capitation on secondary education, a gap that will be filled by parents.

Muraguri said that while there have been efforts by the current government to tighten its fiscal policy, more needs to be done in terms of cushioning Kenyans against the runaway inflation, effects of the Russian-Ukraine war and the depreciating value of the Kenyan shilling against the US Dollar.

“The last two years saw the government set revenue and fiscal deficit targets that were overly ambitious. With limited buffers against external shocks, the government is finding itself in a tight spot as it tries to navigate the global tightening of the monetary policy and rising debt interest payments,” he stated.

Price levels

“With this in mind, we expect a change in policy direction focusing more on fiscal policy coordination to address surging price levels, cushion citizens facing hunger and starvation and the successful distribution of subsidised fertiliser during the upcoming long rains,” he added.

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