What you need to know:
- Sugar prices have gone up by 61.4 per cent, beans by 27.9 per cent, maize flour 9.6 per cent and cooking oil 18.5 per cent.
- President Ruto had in April vowed that it would take two months for the shilling to gain stability.
The cost of living has risen by 6.7 per cent in the year to August driven by a sharp increase in the cost of basic commodities, underlining the arduous task President William Ruto has faced in fulfilling his pledge to cushion citizens.
According to data from the Kenya National Bureau of Statistics (KNBS), sugar prices have gone up by 61.4 per cent, beans by 27.9 per cent, maize flour 9.6 per cent and cooking oil 18.5 per cent.
Further, the cost of 50 units of electricity has jumped by 68.7 per cent, that of cooking gas has gone up by 12.7 per cent and diesel by 18 per cent.
“The overall year-on-year inflation rate as measured by the Consumer Price Index (CPI) was 6.7 per cent in August 2023. During the reference month, all sectors continued to record general increase in prices,” said KNBS.
This has been brought about by a biting drought that saw local food production plummet, rising global food prices and the decision by the President to withdraw subsidies on fuel, electricity and maize flour. Another cause is aggressive taxation measures that have been adopted by the Kenya Kwanza administration including the recent move to double value added tax (VAT) on fuel to 16 per cent from eight per cent through the Finance Act, 2023.
Another factor has been the depreciation of the shilling. Just a day before he was sworn into office last year, the Kenyan Shilling exchanged at 120.3 units against the US Dollar, and 120.6 units against the Euro.
Exactly a year later, yesterday, the shilling exchanged at 146.36 units against the dollar and 157 units against the euro according to official Central Bank of Kenya (CBK) records, shedding value by 21.6 per cent and 30.2 per cent against the dollar and the euro, respectively.
The depreciation rate has been more than twice faster on the dollar the past year as compared to the year to September 2022, and on the Euro, it has moved from gaining a 7.2 per cent value in the year to September 13, 2022.
Debt service pressures have also risen sharply. The government spent Sh391.6 billion to pay external creditors in 2022/23, comprising of Sh237.4 billion (60.6 per cent) principal and Sh154.2 billion (39.4 per cent) interest, Treasury data show. At least two thirds of the external debt by April was denominated in US dollars, with CBK data showing that, by end of June, external debts totalled Sh5.1 trillion (52.8 per cent) of Kenya’s total public debt.
Depreciation of 21.6 per cent on Sh3.43 trillion US dollar-denominated debt (being 66.8 per cent of Sh5.1 trillion external debt), would add Sh741 million onto the debt, even before calculating interest and other charges.
In 2022/23, the government borrowed heavily from domestic markets (Sh459 billion), pointing to the possibility that the rise in the external debt stock by over $1.7 billion in the year to June was largely due to depreciation of the shilling.
A government strategy to stabilise the local currency through a government-to-government fuel importation programme with the United Arabs Emirates, which allowed for the importation of fuel products on a six-month credit period backfired, and the shilling has continued to lose value since onset of the initiative in April.
President Ruto had in April vowed that it would take two months for the shilling to gain stability following introduction of the programme, but the markets have defied his projection.