Kenyans are raiding the granary to survive IMF austerity

Kenyans have bucked a fifteen-year-old trend of always keeping away part of their incomes for a rainy day as the population of savers in 2024 declined to 68.1 percent for the first time since 2009.

I remember as a child we used to have those granaries in Bunyala where I am from, built skillfully to keep out rodents and men; that it could survive greed and was only be accessed when new yield to replenish the savings came in.

In this day and age, Kenyans who put away part of their funds in saccos, banks and insurance policies chose to eat those savings despite the disincentives like penalties and lower surrender values.

In fact Kenyans were eating their money at a time when demand for savings has been so high that banks are willing to pay top dollar, to hold on to it.

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According to the 2024 Finaccess Household Survey released last week, most Kenyans can barely meet their daily needs and have turned to borrowing, consuming their life savings, redeem insurance policies just to survive.

Collapse in savings

The survey by the Central Bank of Kenya (CBK), the Kenya National Bureau of Statistics (KNBS) and the Financial Sector Deepening Trust Kenya shows savings dropped from 74.0 percent in 2021 to 68.1 percent in 2024, as households prioritized meeting day to day needs.

In 2024, the population using insurance (excl. NHIF) declined by about 0.13 million from 1.9 million in 2021 to 1.77 million in 2024 attributed to the declining disposable income among the population considered as breadwinners.

Premium defaults were the highest cause of unpaid insurance claims with the survey showing 44.1 percent had issues of overdue premium payments attributed to falling disposable income, or, lack of awareness on the implications of failing to pay premiums.

During the release of the survey authorities noted the collapse in savings was a great concern to policymakers who were looking at barriers to savings such as costs and the use of technology to improve product access.

IMF Austerity

However, the real burden lies in declining incomes. The survey findings indicate that the main reason for stopping savings is current financial constraints, cited by 90.5 percent of respondents. This was followed by 18.2 percent who mentioned loss of income, and 3.9 percent who preferred other investment or savings options.

This is as a direct impact of the government implementing the International Monetary Fund (IMF) austerity programme through tax increases and statutory deductions that have shrunk workers' pay slips at a time when prices of goods have also gone up.

The government which is demanding positive publicity for reducing rate of inflation and calming shilling volatility keeps finding data that confirms their policies have also been harmful on the population.

The austerity has collapsed demand, leaving the private sector without customers but with huge costs of loans invested in production. Corporations have resorted to cost-cutting, laying off workers and suspending investment which further brought a slowdown.

Demand collapse

Kenya's economy slowed down in the first half of 2024, with real GDP growth averaging 4.8 percent compared to 5.5 percent in the first half of 2023. This slowdown mainly reflected a deceleration in growth in most sectors of the economy.

Without demand, sales have fallen and companies are defaulting on their loans with the ratio of gross non-performing loans (NPLs) to gross loans standing at decade highs of 16.5 percent in October 2024. Banks have in turn reacted by raising cost on borrowers and tightening loan disbursements to protect their bottom lines from provisions, in turn collapsing the credit market.

The Central Bank of Kenya Monetary Policy noted growth in local currency-denominated loans stood at 4.0 percent in October, with the foreign currency-denominated loans, which account for about 26 percent of total loans, contracting by 11.8 percent.

“The CEOs Survey and Market Perceptions Survey which were conducted ahead of the MPC meeting revealed respondents expressed concerns about high cost of doing business, subdued consumer demand, and increasing geopolitical tensions,” CBK Governor Dr Kamau Thugge said in the MPC statement.

Interest rates vs cost of savings

The authorities see the challenge as a factor of costs and have lowered interest rates to 11.25 percent and ‘urged the banks to take necessary steps to lower their lending rates, in order to stimulate credit to the private sector, and thereby stimulate more economic activity.’

“The Committee observed that short-term rates on government securities had declined sharply in line with the CBR, but that banks had not responded by lowering their rates proportionately,” Dr Thugge said.

However the survey shows, that the problem runs deeper, a collapse in savings and a shift away from long-term prospects means the cost of money will be even harder to bring down in the short run.

The FSD survey shows that a majority of those who are saving, are keeping money only briefly to meet expected expenditure and money that used to be set aside for investments, education and pension is being eaten up.

Reasons for savings

The survey showed 35.6 percent of respondents are saving for day-to-day needs, followed by 27.7 percent who save for emergencies.

Education needs accounted for 9.9 percent of savings, while 12.6 percent saved for retirement. Business-related savings were reported by 8.1 percent, while 10.1 percent saved simply for safekeeping.

A smaller portion, 4.1 percent, saves with the goal of purchasing land, property, or house improvement. These findings suggest that the savings culture is primarily driven by immediate needs, with a strong emphasis on day-to-day expenses and emergency preparedness.