How microeconomic stability can grow private investments

 

KENYA :

Kenya has made significant political and economic reforms that have contributed to sustained economic growth, social development, and political stability over the past decade. However, its key development challenges still include poverty, inequality, transparency and accountability, climate change, continued weak private sector investment, and the economy's vulnerability to internal and external shocks, according to the World Bank.

The poverty rate is increasing in Kenya as the living standards are upscale.

Yes, we appreciate the government's efforts that have seen the economy flourish; what about thousands of Kenyans plunging into poverty?

It is true; people find it hard to have two meals daily.

While in a supermarket, a certain man told me that one thousand shillings are like one hundred shillings nowadays. His sentiment got me thinking. I dived into thoughts to compare life now and five years before.  I could buy lunch with a hundred shillings, but now I cannot.

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Poverty is an unacceptable deprivation of human well-being that can comprise physiological and social deprivation. Physiological deprivation involves the non-fulfillment of basic material or biological needs, including inadequate nutrition, health, education, and shelter. A person can be considered poor if he or she is unable to secure the goods and services to meet these basic material needs. Physiological deprivation is thus closely related but can extend beyond low monetary income and consumption levels. Social deprivation widens the concept of risk, vulnerability, lack of autonomy, powerlessness, and lack of self-respect.

Therefore, the government should draw attention to the increasing poverty rate in the country. An important aspect that it should primarily focus on is microeconomic stability. The laid strategies to mitigate poverty should be sustainable and noninflationary.

Notably, macroeconomic stability is the cornerstone of any successful effort to increase private sector development and economic growth. Cross-country regressions using a large sample of countries suggest that growth, investment, and productivity positively correlate with macroeconomic stability.

Microeconomic instability is a significant burden on the poor. Inflation, for example, is a regressive and arbitrary tax, the burden of which is typically borne disproportionately by those in lower-income brackets. The reason is twofold.

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Poor people tend to hold their assets in cash rather than interest-bearing assets. Additionally, they are generally less able than are better off to protect the actual value of their incomes and assets from inflation. In consequence, the price jumps generally erode the real wages and assets of the poor more than those of the non-poor. Moreover, beyond certain thresholds, inflation also curbs output growth, which will impact even those among the poor who infrequently use the money for economic transactions.

Thus, the government has to adjust and come up with measures that will improve the poverty rate in the country.

Macroeconomic policies influence and contribute to attaining rapid, sustainable economic growth aimed at poverty reduction in various ways. Policymakers send clear signals to the private sector by pursuing sound economic policies.