Cash circulating outside the banking system in December grew 0.58 percent, the slowest in 24 years amid contracted payslips for those salaried and tough economic times for most Kenyans.
Recent data from Central Bank of Kenya (CBK) reveals that cash circulating in the economy in December increased by Sh1.67 billion to close the year at Sh292.8 billion, reflecting a 0.58 percent growth in the festive month.
At 0.58 percent, this is the slowest growth in cash circulation since 2001 despite President William Ruto’s administration push to revive the economy.
The muted growth in cash in consumers’ pockets features a time when Kenyans are grappling with the high cost of living and those salaried struggling with reduced disposable incomes.
For instance, following the introduction of housing levy charged at 1.5 percent of gross salary on top of Social Health Insurance Fund (SHIF) at a rate of 2.75 percent, the share of deductions on the payslip saw the disposable income shrink by a big margin.
As a result, the purchasing power of consumers has been eroded which has a ripple effect on firms as it lowers the earning power of firms.
In one of the interviews with the executive director of Kenya Employers last year, she noted: “The enforcement of the housing levy and the SHIF, alongside Paye, has placed an increased financial burden on both the employers and employees.”
“Our members report that this has reduced disposable incomes for workers significantly dampening consumer spending.”
Cash circulation, which measures the liquidity of firms and households for money available for spending, hit a record high of Sh292.8 billion in December last year.
The amount of cash in consumers’ pockets tends to rise by bigger margins in December due to the festive season in December, all the way to the New Year.
It grew by 3.44 percent in 2023, 3.38 percent in 2022 and 6.22 percent in 2021.
