Cost of living: Tough times ahead

Inflation might hit an all-time high of 11 per cent as a result of the prolonged drought earlier in the year, the Parliamentary Budget Office has warned, signalling tough times for Kenyans already reeling under high cost of living.

Last month, inflation reached a 19-month high of 6.58 per cent, eroding the purchasing power of consumers who now need an additional Sh658 to buy a basket of goods that last year cost Sh10,000.

FORMAL JOBS
The grim report also comes against the backdrop of the data released by the Kenya National Bureau of Statistics (KNBS), which indicated only 78,400 new formal jobs were created in the economy last year, compared to 114,400 in 2017.

This was the slowest pace of formal job growth since 2012, when the economy churned out 75,000 official jobs.

“The economic growth projection of 6.2 per cent for 2019 appears to be premised on weak fundamentals,” warns the document titled ‘Unpacking the Estimates of Revenue and Expenditure for 2019/20 and the Medium Term’.

The document, prepared by the Parliamentary Budget Office, notes that the Treasury pegged the 2019 economic growth projections on stable weather despite the already “very apparent poor performance of the March-April-May long rains season”.

It also hinged its 2019/2020 budget growth forecast of 6.2 per cent on a single digit inflation of 5 percent.

“Given a much delayed onset of the long rains, the amount of rainfall for most parts of the country is currently below 55 per cent of what is normally experienced. According to forecasts, the rains are likely to peter out by end of May 2019 and most of the country will receive below average rainfall by end of the season,” the document reads.

The delayed rains adversely affected the planting season and a below-average rainfall performance is likely to result in lower food production, inadequate fodder for livestock and inadequate water and electricity supply, presenting significant challenges in terms of the food and inflation outlook.

The Kenya Agricultural and Livestock Research Organisation (Kalro) has also recently expressed fears of a worsening invasion of armyworms because of the scarcity of rains, which creates a thriving environment for the pests.

The worms were responsible for the fall in maize production by about five million bags in 2017.

The fall armyworm, a virulent strain that devastates acres of land in no time, has already been reported in Uasin Gishu, Trans Nzoia, Nandi, Narok, Busia, Kisumu, West Pokot and Elgeyo-Marakwet counties.

“There is a likelihood of higher inflation on account of food scarcity and higher electricity prices, reduced income for the majority of rural dwellers who rely on income from agricultural activities, reduced agro-processing output and a possible widening of the current account deficit due to reduced agricultural exports. If the current trend persists, inflation is likely to reach 11 per cent by close of December 2019,” the budget office warns.

The document also blames a weak global economic outlook for a possible downturn. Coffee and tea — two of Kenya’s most important experts — are already fetching lower prices in the commodity market.

Kenya recently inked a lucrative deal to export its avocados to China. The budget office now warns such deals maybe in jeopardy.

“The ongoing trade tensions between the United States and China may not augur well for Kenyan commodity exports to China and the US, which are key inputs for either Chinese exports to US markets or US exports to China, especially if these products are targets for trade wars between the two countries,” the document reads.

Despite its lower performance compared to other countries and government’s lip service to it, agriculture’s contribution to Kenya’s Gross Domestic Product (GDP) has continued to rise since 2013, hitting a high of 1.35 last year, which represented 21 per cent of the overall growth of the GDP.

The other 10 sectors — real estate, transport and storage, construction, education, finance and insurance, manufacturing, information and communication, wholesale and retail trade, mining and quarrying as well as accommodation and food service — shared out the remaining 79.

The budget office also holds a dim view of the implementation of the Big Four agenda sectors of agriculture, manufacturing, housing and health, warning the Sh450 billion allocated to them may not be sufficient.