What you need to know:
- President Kenyatta may not have meaningful fiscal and monetary firepower to fight the recession.
- State coffers are emptying just when the Chinese and Europeans expect us to repay them.
The Jubilee administration’s jobless, debt-financed economic growth has finally run its course. The near-decade of excessive borrowing, uncontrolled expenditure, mismanagement and wanton looting has exhausted the government’s capacity to secure new development financing.
Mid last year, the country entered into an economic recession — a painful phase that was last experienced more than 20 years ago.
Under President Uhuru Kenyatta, the country has registered nothing but phantom growth. The economy did not grow. The country’s net worth simply increased year after year on the strength of how much we were receiving in loans, foreign aid and illicit financial flows, most notably proceeds from Al-Shabab piracy activities.
It was momentary growth, akin to a poor man who suddenly becomes a “millionaire” purely because he has secured a bank loan worth several million shillings. Access to credit has helped to launch successful business empires. But it has also been a cause for bankruptcies and destroyed lives.
An economic recession portends tough times. Determined by two consecutive quarters of negative growth, it represents a contraction in gross domestic product (GDP). While it is tempting to blame Covid-19 for the downturn, there were signs that the economy was in distress way back in 2017.
That’s when the service sector began shedding jobs, a situation occasioned by the closure of several hotels.
Of great concern is an admission by Dr Patrick Njoroge, the Central Bank of Kenya governor, stating that the government had eroded and weakened the buffer needed to cushion the country.
In fact, President Kenyatta may not have meaningful fiscal and monetary firepower to fight the recession. State coffers are emptying just when the Chinese and Europeans expect us to repay them.
Economic contraction would inherently translate to reduced tax revenue. The Covid-19 pandemic would continue to prevent the tourism sector from rebounding.
It would take at least a year before ongoing inoculations can lift the sector. In other words, the recession would be exacerbated by a debt crisis that may culminate in the government defaulting on its loans. Such a situation would cause the country’s credit rating to be downgraded. And if this were to happen, accessing credit would be prohibitively expensive.
Issuing more fiat money
This government is likely to respond to the biting revenue crunch by issuing more fiat money. This is to say, they could simply print more money to pay salaries and retire a portion of domestic debt.
But such a move would be more than dumb for it would trigger hyperinflation, causing the shilling to undergo massive devaluation and, eventually, collapse. The economy, as we know it, would completely unravel.
The possibility of creating devastating shockwaves through regional economies is likely to bring in the titans of the global financial system, including the International Monetary Fund (IMF), in an attempt at nipping it in the bud.
Worse still, observed dictatorial tendencies, belligerent talk, chest-thumping, balkanisation and hard positions taken by opposing camps in the push to amend the Constitution is likely to plunge the country into a political crisis and ethnic violence.
The country is in dire need of a strong and decisive leadership capable of championing the reforms necessary to manage these challenges. But completely unmoved by what is happening, the President is keen on expanding the Executive and Parliament through the contentious Building Bridges Initiative (BBI) process.
Unfortunately, this recession is likely to cost a large number of national and county government employees their jobs. Regardless of one’s academic qualifications, many unemployed and under-employed individuals may not find decent employment.
There are measures individuals can take to protect themselves, however. They could harness their talents, utilise available resources and start side hustles, no matter how humble. Research low-risk, recession-proof business undertakings. The creative economy offers new opportunities for those able to generate digital content for a range of platforms, including YouTube.
For those still collecting pay cheques, prepare for layoffs by spending less and saving more. Hold off making large purchases — such as a house, car or land — for prices tend to fall in a depressed economy. Protect your savings by converting it to foreign currencies, including the US dollar.
Accelerate plans to relocate overseas in search of new opportunities and further studies. Find cheaper housing alternatives and, if you can, flee Nairobi.
Mr Chesoli is a New York-based development economist and global policy expert. firstname.lastname@example.org.