Government must walk back on austerity to address worsening inequality

The COVID-19 pandemic pushed millions into poverty and dramatically increased inequality and poverty in Kenya. Approximately 2 million people were pushed into poverty in the first year of the pandemic alone, as the effects ravaged households, especially the vulnerable, who constitute most of the Kenya’s population. The government of Kenya responded with various fiscal measures, but these were inadequate and reached only a fraction of the neediest.

Although Kenya has seen robust economic growth in recent years, economic inequality remains high as the growth has mainly been captured by few. Between 2016 and 2021, the number of individuals with wealth over $50 million increased from 80 to 120. Their combined wealth increased, from $12.73 billion to $17.4 billion, an increase of 36.8%, adjusted for inflation.  In fact, wealth concentration is high that the two richest Kenyans own more wealth than the bottom 30% of the population, translating to some 16.5 million people...

The pandemic, compounded by locust infestations, climate crises, has brought Kenya’s worst economic crisis in decades.

Kenya is currently experiencing one of the worst droughts on record that is ravaging parts of the arid and semi-arid lands (ASALs), and which has rendered over 2.9M people food insecure and a further 3-4  million projected to be in urgent need of humanitarian assistance in coming months. The drought situation has damaged household economies, people’s health and social-well-being, forcing many households to adopt negative coping strategies to survive.

But instead of taxing the wealthy to mount an effective resilience-focused response to the drought, and “Build Back Better” from COVID-19 impact, the Kenya Government is planning to slash its public spending in the coming years. These proposed cuts will threaten to hamstring its ability to spend on health, education, social protection, and food security to protect and support those marginalized by the pandemic and the economic crisis.

“The extreme inequality in Kenya of increasing wealth and opportunity concentration and opulence, while millions of Kenyans are sinking more and more into undignifying deprivation and hopelessness, is an unfortunate political choice. It is obscene, unethical and a form of social violence” says John Kitui, the Country Director, Oxfam in Kenya.

It is, however, not too late to change direction – as captured in the latest edition of Oxfam and Development Finance International’s Commitment to Reducing Inequality Index (CRII) report; titled “The Inequality Crisis in East Africa”. The report is scheduled to be launched publicly at an international forum of government, civil society, private sector, and donor representatives from East Africa and beyond, in Nairobi on 9th February 2022.

According to the report, COVID-19 caught Kenya completely unawares.

• most of its workforce was in precarious employment.
• health spending as a percentage of total government expenditure was 9.2%.
• nearly half of the population had no primary healthcare coverage, while about 5% were spending more than 10% of their budget on healthcare, pushing millions into poverty and further impoverishing thousands of others.
• Spending on social protection was just 4.5% of the government’s budget.

It’s even gloomier that the government has been forced to use more and more of her budget to service the ballooning debts, rather than investing in its people. The report notes that in the financial year 2020/21, 35.2% of Kenya’s revenues was spent on debt repayment, an average of five times as much as they spent on health.

So, what can be done to reverse this crisis?

The report shows that taxing wealthy Kenyans, and corporations would give Kenya a way out of the crisis and allow for more spending more on public services that reduce inequality. One survey shows that over 75% of Kenyans think it is fair to tax the rich more to fund programs that benefit people living in poverty. If Kenya government increases tax revenues by just 1% of GDP, it would raise an additional $1.34 each year for the next five years, which would be enough to more than double national government health spending. A wealth tax could raise much of that.  An annual wealth tax on the wealth of multimillionaires at a rate of 2% and 3% on wealth of over $5 million and over $50 million respectively would raise $900 million a year (roughly 0.9% of GDP).

Development Finance International (DFI) and Oxfam also argue that comprehensive debt relief is essential for Kenya to have enough money to increase spending on her basic services

DFI and Oxfam recommend that Kenya urgently:

• reverses the planned budget cuts and increases spending for health, education, and social protection.
• funds these enhanced spending efforts by increasing taxes on the wealthiest individuals and largest corporations and ends wasteful tax exemptions.
• dramatically improves labor rights, including introducing or raising minimum wages.

They also recommend that the IMF and World Bank transform their lending programs to encourage Kenya to increase pro-poor and social spending, redistribute wealth through progressive taxation, and enhance her labor laws and protections.

They urge the international community to accelerate the distribution of free COVID-19 vaccines to all East African countries, to ensure high levels of vaccine coverage by June 2022; and to cancel all debt service obligations between now and 2030, in order to allow Kenya and her East African neighbors to reach the Sustainable Development Goals.

Finally, DFI and Oxfam recommend that the African Union and East African Community urgently recognize Kenya’s inequality crises and establish a plan and monitoring systems to track government’s measures to reduce inequality.

ENDS