Business Edge | Kenya Takes On Inflation and Budget Deficits

As the nation sets about the work of recovery from the two years of the Coronavirus pandemic, Kenya is also working towards protecting its income as well as eliminating recurrent budget deficits by embarking on reforms across various industries. This move is supported by the International Monetary Fund which has been advocating for regulated expenditure and the restructuring of loss-making state-owned companies. This is following the Fund’s approval for another $244 million loans to Kenya as part of a $1.6 billion previously agreed to in April 2021. The IMF wants rigorous spending management and the formulation of a medium-term income strategy which is expected to assist in underpinning deficits reduction in the coming years. While this is going on, President Uhuru Kenyatta has approved an increase of the national minimum wage to relieve Kenyans from the inflation, hike in price and scarcity of commodities newly brought on by the Russian war on Ukraine. On Business Edge, Ken Gichinga, Chief Economist at Mentoria Economics joins Tolulope Adeleru-Balogun and they delve into the economic reforms in Kenya, the IMF’s role in providing loans to the country as well as further investment by the Kenyatta government.

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On the 12% increment of wages, Ken thinks it’s a combination of both economic and political factors. The general elections in Kenya are only a few months away and sceptics might suggest it was announced only to curry voters’ favour at the polls. However, the reality of the situation is that Kenyans indeed need relief from the crunch being felt, which has lasted now for around two years. “There hasn’t been a wage increase since 2018 and inflation has eroded the purchasing power of Kenyans,” he said. “It might not sound like much but it will help Kenyans deal with the rising cost of food and transportation in the cities.

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The conversation also touches on the impact of the new wage bill on the IMF loan, expectations for the disbursement of the loan and necessary reforms in Kenya’s state companies.

Watch above.

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