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The good, the bad and the ugly of Ruto’s economic policies
Kenya's President William Ruto addresses a joint session of Parliament, with members of both the Senate and the National Assembly of the 13th Parliament at the National Assembly Chamber in Nairobi, Kenya on November 21, 2024.
When he delivered his second annual State of the Nation address on November 21, President William Ruto oozed confidence that his administration’s economic policies had been successful in tackling two of the biggest challenges the country was facing when he took power slightly more than two years earlier.
At the time, Kenyans were facing record-high prices of food, while most companies struggled to access adequate dollars in a net import country further driving up the cost of goods.
Dr Ruto was quick to point out that he had lived up to his campaign pledge to ease the cost of living by bringing down prices of staple foods such as maize flour.
The cost of living, measured by inflation, stood at 2.8 percent in November. This implies that the annual rise in average cost of goods and services is the softest since May 2007 largely on the lower cost of food and energy.
The President has credited the easing rise in living costs to a shift from short-term price cushions for consumers to production subsidies on farm inputs such as fertiliser.
Rainfall has also been relatively adequate in the last two years unlike in 2022 when the country endured a debilitating drought, believed to be the worst in 40 years amidst global supply chain challenges that followed Russia’s brutal war in Ukraine.
“This achievement has been the consequence of favourable weather, and our deliberate efforts to support farmers with affordable inputs including subsidised fertiliser, leading not only to increased production but also productivity, and lowering the prices of many cereals, including maize, and pulses such as beans and peas,” Dr Ruto said.
Official numbers show that the cost for a two-kilogramme packet of sifted maize flour, a staple, averaged Sh134.37 in November compared with Sh180.80 in September 2022, while wheat flour of similar weight has fallen from an average of Sh198.22 to Sh169.75 in the review period.
However, despite average sugar prices falling 27.40 percent per kilogramme in November compared with a year earlier to Sh158.23, the cost is still higher than Sh138.35 in September 2022 when the Ruto administration took power, according to Kenya National Bureau of Statistics.
Other basic goods whose prices are higher than September 2022 include the refilling of 13-kilogramme cooking gas which averaged Sh3,147.66 compared with Sh3,106.66, while 200 units of electricity cost households Sh713.16 compared with Sh5,040.70.
Motorists, on the other hand, are paying an average of Sh178.11 per litre of petrol which is below the Sh180.05 average during the last month of the predecessor administration, but diesel at an average of Sh167.12 per litre is still higher than the Sh165.91 average in the review period.
The Ruto administration, however, takes accolades for partly helping ease the annual rise in goods and services to the slowest pace in about 17 years through its policy on production subsidies.
The slowdown in inflation also benefited from actions taken by the Central Bank of Kenya’s Monetary Policy Committee to manage imported inflation.
These largely centred on foreign exchange market reforms, including reviving the interbank foreign exchange market, removing a 20-cent cap between forex ask and bid prices as well as introducing of an electronic matching system of forex deals.
This helped steady the shilling against major international currencies such as the US dollar.
The Kenyan currency is hovering around 130 units against the greenback on average from a low of Sh160.75 in February. However, the shilling is still weaker than the 120.42-unit average in September 2022.
The Ruto administration’s policies have, however, largely wiped off volatility in currency trading. Kenya’s move to undertake a partial buyback of its debut $2 billion (about Sh258.9 billion under prevailing rates) Eurobond in February helped ease investor jitters, some of whom expected the government to default on its external debt liabilities for the first time ever.
Managing expectations on inflation and shoring up dollar inflows, nonetheless, also came with a cost to the economy as the CBK was forced to raise the interest rates primarily to slow down demand-driven borrowing, but also to attract foreign investors.
As a result, growth in credit to the private sector has fallen to lows last seen during the interest rate control periods back in 2017, with lenders preferring to advance to the government, which has as much as 16 percent return for the better part of the year.
This resulted in banks raising average lending rates to 17.15 percent in October from 12.39 percent two years ago. The elevated interest rates have prompted businesses to postpone investment projects, thus hurting job opportunities for skilled and semi-skilled labourers.
The drop in expenditure has resulted in a reduction in money circulation in the economy amidst increased taxation on workers’ earnings.
National Treasury Cabinet secretary John Mbadi appearing in the National Assembly in November acknowledged the economy was grappling with cash flow challenges, partly because of piling pending bills to government suppliers and contractors.
This has been compounded by the elevated cost of borrowing which has made access to capital, especially for small businesses difficult.
“Why Kenyans feel they don’t have money in their pockets is what we must deal with. And I have talked about pending bills which is hurting and choking this economy and we are dealing with that,” Mr Mbadi said. “But the second, which is now starting to look good, is interest rates. We have started to see a fall in interest rates.”
Treasury formed a Pending Bills Verification Committee to validate arrears for the period between July 1, 2005 and June 30, 2022. The team, led by former auditor-general Edward Ouko, had by September received 114,376 claims worth Sh664.7 billion.
A large number of business people who have contracts with the government have ended up being blacklisted by credit reference bureaus after falling behind on loan repayments or defaulting, hurting chances of borrowing in the future.
