How The Kibaki Government Spoiled The “Party” Leading To Inflation – Muhatia Speaks

 

My memory serves me right when I remember the times I joined high school. A loaf of bread costed less than ten shillings but by the time I was cleared that level, it used to cost more than fifteen shillings.

Then I remembered in the year 1998 the price of a bar of soap was Sh 39 while the price of 2 kg Exe Chapatti was Sh 63, a larger Del Monte Juice was Sh 85 while a Colgate was Sh 85 while Fahari ya Kenya tea was Sh 50. I thought the government had decided to collect all I had for its own pleasure.

But I recalled during the same time a bag of maize 90kg used to cost Sh 900 while a tray of egg was Sh 150.a litter of milk  was Sh 15 while other farm produce were costing much lower than it does cost now.  At this point I got confused!!! I have seen people proudly talking about how in those years things were cheap and that the government has failed them.

People always want to sell their product at increasing price and buy other products at decreasing price which is weird because when one is selling the other is buying. I concluded they are not serious when they complain about inflation.

Inflation is a rapid increase of money in an economy than the output. Generally money in an economy increase either through printing money or borrowing from external sources.  Money in circulation is what inflates or deflates the prices.

In 1995 the total amount of money in the circulation was Ksh 34.1 billion; this was during the Nyayo era.  This figure grew steadily and by 2002 when the NARC government took power the amount was at Ksh 46.6 billion. This is the total amount of notes and coins in the Kenyan economy either from borrowing or from printing money.

Then Kibaki took power and he just spoiled the party.

By the end of his first term the total amount in circulation was Sh 116 billion. The amount in circulation had tripled what was circulating during the Moi regime

In 2013 the amount in circulation was Sh 197 .4 billion. This was five times what was in the economy a decade ago then. During this era a number of things happened.

As citizens, we demanded from the government a million jobs they purported to have created.We demanded mega projects, salary increase of civil servant starting with MP’s among other services.

After we received what we wanted, just as wife would praise her husband for that super gift, we all hailed Kibaki and his regime as economics gurus. liitle did we forget that  they did make fun of us.

It’s natural that government hates taking responsibility and in this they will never admit they were too excited.  The debt we have now that have grown to about 51% of our GDP was as a result of the past government policies.

Banks have always adjusted for inflation hence they lend to us at extremely high rate while giving the depositor a very small percentage as interest income. Our tax system is progressive in nature hence the more you earn the higher the tax you are taxed.

If the prices of the commodities increase by 10% and your salary increases in the same percentage you are left worse off as you will be taxed heavily.

When government floats a T-bill of 11% and inflation is 8% at maturity when you redeem, you only earn 3% then government tax you a capital gain and scoop the remaining 3%. You end up paying government for lending to it.

Government end up achieving what it’s citizens demand for their political gain while the same time citizens are left worse off.  To add salt into the wound citizen hails the same government that made fun of them.

Bottom line?

The Kibaki government in as much as it’s seen to have revived our economy it allowed the rapid increase in the amount of money in circulation without consideration.

This led to increase in inflation which is totally a monetary policy issue and it also made our currency to deplete in value compared to other currency like USD.

People have always had this misconception that electing right people will save the economy, No!

The better way to bring change and solve economical problem is for us citizens to make it politically possible for even the wrong people to govern and make the right decision.

Another common error we make is to think that wages increase brings inflation or we import inflation.  The next time the cloth vendor says the reason he is inflating price is because he is buying at higher price know he/she is making fun of you.

Lastly know in economy what is true for an individual is usually opposite for everyone.

CREDIT: GATHATHAI MWANGI

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About the Author

Muhatia
Muhatia is the Managing Editor of Biz News Media Reach him via editor@biznews.co.ke