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LETTERS: Are we on the verge of an economic crash?

by biasharadigest

LETTERS: Are we on the verge of an economic crash?

The economy cannot be growing if businesses are closing down. FILE PHOTO | NMG 

It is no longer a secret that the Kenyan economy is on the verge of a crash. The massive job losses, skyrocketing food prices and the high rate at which many companies in Kenya are either closing shops or struggling to keep afloat point to an economy that is nosediving overpoweringly.

As of August 2019, the Registrar of Companies had listed some 388 companies as having been dissolved between March and August. The collapse of businesses and high cost of living in Kenya are a culmination of longstanding and unresolved unemployment in the country. When unemployment rates are high, consumers have less money to spend, which negatively affects among other things sales, profitability, retail stores, housing markets, and stocks.

The health of an economy is signalled by its level of business start-ups, income and wages, unemployment rate, interest rates and Consumer Price Index or inflation. If we assess the state of Kenya’s economy using these parameters, then it is difficult, if not impossible, to believe the government’s claims that the country’s economy is growing as evidenced by what they term an expanding Gross Domestic Product (GDP).

It is ether GDP is no longer a leading indicator of a growing economy or the government wants us to believe that the GDP has increased when it has not. This brings to the fore the avowals of Gatundu South MP Moses Kuria that the government cooked books and cheated Kenyans on the state of the economy and debt levels.

It cannot be that the value of Kenyan products and services is increasing when the companies that contribute directly to this growth are either struggling to keep afloat or closing shops altogether; and the human resource, whose labour and skills are vital in this ideal progress is being summarily dismissed from the market at the rate of 20000 people in a year.


The economy cannot be growing if businesses are closing down instead of new ones starting up or when food prices go up while the incomes and wages simultaneously decline. Declining incomes reflect an environment where investments are not performing well. It is a sign that employers are either cutting pay rates, laying workers off, or reducing their hours.

It is thus convincing when Mr Kuria says that books were cooked to show an increasing GDP. The acts of omission and commission exacerbated the economic downturn because all along, the government has been acting based on cooked figures.

When figures had been doctored to the extent it was unsustainable to do so, the National Treasury was forced to cut the government’s planned spending for the 2019/20 (July-June) fiscal year by 2.1 per cent, equivalent to Sh46.2 billion.

The economy has shown signs of malfunction for quite some time now. Inflation has been on and off. In 2017, the government responded to inflation by subsidizing the price of unga but did not address its underlining causes.

Two years later, the same problem has re-emerged but this time with added problems of immense job loss and dwindling businesses, an indication that the economy is deteriorating- a precursor to a tragic end.

This comes at a time when the policymakers are apparently ingrained in infrastructural development. They take huge loans to fund infrastructure some of which end up stalling due to corruption. Just recently, the members of parliament approved a request by the National Treasury to raise the public debt ceiling to Sh9 trillion from Sh6 trillion even as the World Bank warned that Kenya’s failure to fulfil its commitment to live within its means could make it difficult to repay its debts when they mature.

Superhighways and by-passes and good roads are good for an economy but not as good as booming industries, business start-ups, low unemployment rate, high wages and high standards of living.

Successful businesses create jobs and generate revenues that can be used to fund infrastructure even without taking loans. Infrastructure funded by borrowed money, however, escalates taxes making cost of doing business unbearable which reflects in the cost of living.

It is meaningless to have an island of first-class hospitals amidst an ocean of poor folks who cannot afford the hospital bills just as it is to build by-passes with borrowed funds amid perturbing joblessness.

“At the end of the day, what is needed is specific income plus jobs” as Central Bank of Kenya Governor Patrick Njoroge rightly observed, adding that if economy is driven by infrastructure, then it is not important because the growth is brought about by what really hits the pocketbooks of common mwananchi.

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