After months of skyrocketing food prices, coupled with billions of debt from both domestic and foreign agencies (some already defaulted), Sri Lanka’s economic crisis crescendoed into mass protests. This escalated when protesters marched into the presidential palace on April 9.
In images and videos circulating online, Sri Lankan protesters are seen wining, dining and even swimming in the prestigious presidential abode, forcing the then President Gotabaya Rajapaksa to not only resign but also flee the country.
So, is Kenya really on the verge of becoming the next Sri Lanka?
Economic Indicators show that Kenya is slightly better off
In the most recent consumer price index by the Kenya National Bureau of Statistics (KNBS), food inflation in Kenya is at 15.3%. This compares to Sri Lanka’s 90.9% food inflation as recorded in the Central Bank of Sri Lanka July 2022 statement on consumer price indices.
In the category of ‘Gas and other fuels’ in Kenya, the KNBS reports an inflation rate of 5.6%. This compares to a 16.8% inflation rate recorded in the ‘Housing, Water, Electricity, Gas and Other Fuels’ category from the Central Bank of Sri Lanka report.
The annual average inflation rate in Sri Lanka is 16.8%. In Kenya, this figure is currently at 8.3%.
When it comes to public debt, here is how the two countries rank: Kenya’s current debt is more at Sh8.4trillion in local currency which converts to over $70 billion, compared to Sri Lanka’s $51 billion.
As per the Gross Domestic Product (GDP) at market price, data from 2021 show that Kenya is worth more than Sri Lanka with a GDP of over $110 billion while Sri Lanka was valued at $84 billion in the same period.
Currently, the dollar exchange rate is Sh120 Kenyan shillings for a dollar, this is equivalent to 360 Sri Lankan Rupees.
But Sri Lankans have a better quality of life than Kenyans
On matters of socioeconomic status, Sri Lanka outdoes Kenya. The unemployment rate in Kenya is higher. According to the most recent Labour Force Report it is at 6.6% while Sri Lanka’s unemployment rate is 4.3%.
Kenya ranks much worse than Sri Lanka in socio-economic indicators according to IMF statements on Poverty and Equity briefs issued in the same period -April 2022. There is a higher poverty rate in Kenya, more Kenyans than Sri Lankans are illiterate, and Sri Lankans have better access to basic infrastructure like clean drinking water, sanitation, and electricity.
The 15.9 million Kenyans, also 1 in 3 Kenyans, often bear the brunt of economic crises. While Kenya evidently outperforms Sri Lanka’s macroeconomics of having a higher value GDP, Sri Lanka’s performance in maintaining a lower poverty gap and better access to basic needs goes to show that the very few rich Kenyans are the ones who can attest to the realities of living in a well-off country.
According to Kenyan economist Fiona Okadia, the GDP is often not an effective measure of a country’s performance. This is why there have been other measures developed like the happiness index.
“It’s a good measure [GDP] but it’s hard sometimes to quantify,” she told Piga Firimbi, “Especially for us in Kenya, the fact that our GDP is driven a lot by government expenditure as opposed to things like increase in aggregate demand.”
“You take an assumption of all individuals and find that they are spending more because they have more in their pockets but that’s not the case. If you look at the figures you will see that our GDP is growing but whatever is driving the figures is not something that is really helping the common citizen,” she added.
According to Fiona, comparing the inflation rate is a better approach to telling a country’s economic prowess or lack thereof. This is because it measures the purchasing power of the consumer, showcasing their ability to buy goods worth a certain amount in a certain period compared to past or future seasons.
“Inflation is actually a good measure to look at whether we are doing well economically and that’s why you find governments around the globe really try to reduce inflation because it erodes the value of money,” she said.
With inflation, consumers are forced to spend their money instead of saving it. If we are not saving it affects investments and therefore affects an economy’s growth. Therefore, by the measure of inflation, Kenya at 8.3% is NOT worse than Sri Lanka, which is currently at an annual inflation rate of 16.7%.
Comparing the dollar exchange rate can also apply in measuring an economy’s performance especially if it is a net importer like Kenya is.
“This mostly applies in terms of trade,” Fiona said, “Imports and exports. That’s the reason we are concerned with whether the domestic currency is weaker compared to the dollar. For a net importer like us, you would not want a situation where the domestic currency is so weak because what this does is that it causes inflation because we now have to spend more. Goods become more expensive domestically because of that depreciation of the shilling and this ends up hurting the consumers.”
It is however a win for markets that import to Kenya but have a higher currency when compared to the dollar because then they get commodities at a cheaper price. The exchange rate also affects debt repayment, which is often valued in dollars. This would mean repaying more than what was anticipated before the exchange rates changed.
While Kenya is also heavily indebted, it has not yet defaulted on foreign loans. Sri Lanka has.
Although Kenya too bears its vulnerabilities, having been listed among countries that are likely to default loans this year. Alongside other African economies like Egypt, Tunisia and Ghana, a Reuters report indicates that Kenya is vulnerable due to the challenges of stabilising debt.
“Kenya spends roughly 30% of revenues on interest payments. Its bonds have lost almost half their value and it currently has no access to capital markets – a problem with a $2 billion dollar bond coming due in 2024,” the Reuters report states.
All factors considered, Kenya just concluded one of the world’s most expensive elections costing about $200 dollars per registered voter in a tally of over 22 million voters.
“We were even skeptical that we could afford the election because of so much of these [economic] thresholds,” Fiona said.
According to a report on the ‘Effect of Elections on Kenya’s Economy‘ it takes at least two years after elections for the economy to recover. This compounded with the current global recession, it might take even longer for Kenya’s economy to recover.
The next government’s most important role would be to restructure Kenya’s debt. This may not be as flashy as brand new roads, but would definitely break the debt cycle and set the country on a steady trajectory for generations to come.