Welcome to our 16th Money Weekly Roundup of 2023. The first week of December ends with revelations from the National Treasury that the country is facing liquidity challenges serious enough to affect the payment of salaries.

In Parliament, MPs are now making a U-turn on several tax changes they passed five months ago under the Finance Act 2023, including a proposal to reverse the 16% VAT on fuel.

Below, as we do every Friday on Money Weekly, we break down for you the top money news from the last seven days that may have an effect on your pocket.

What happened this week

💸 Kenya Govt Faces Liquidity Challenges 

Govt employees are a worried lot after the National Treasury CS Njuguna Ndung’u admitted the government was facing liquidity challenges serious enough to affect the timely payment of salaries. CS Ndung’u was appearing before the National Assembly’s Finance Committee to explain the government’s 5-month delay in disbursing NG-CDF cash.

• Walk-out: MPs earlier this week staged a walk-out, demanding immediate release of NG-CDF funds and threatening to paralyse House activities.

• Christmas Promise: Treasury CS appealed for patience from legislators while attributing delays to cash crunch, natural calamities, and debt obligations. He assured necessary steps will be taken before Christmas to address the issue.

• Inadequate Tax Collection: CS Ndung’u says drought and El Niño affected revenues but assured “It’s a liquidity issue, which is short term.” Read More.

🔄 MPs Make U-turn on High Taxes 

Members of Parliament are now proposing to reverse some of the tax measures they introduced under the Finance Act, 2023, months into their implementation. A report on the National Tax Policy (NTP) by the National Assembly's Finance Committee shows legislators are recommending significant changes in the country’s tax system.

• 16% VAT reversal: Since the Finance Act came into effect in July 2023, fuel prices have increased by about 20%. MPs are proposing the country reverts to 8%.

• Taxable Personal Income Cap: MPs propose a cap on the amount of personal income that can be taxed to protect disposable income and purchasing power.

• Flexible VAT Rates: MPs call for multiple VAT rates to provide flexibility and cushion the economy against global trends and price increases.

• Exemption for Local Manufacturers: The committee suggests exempting local manufacturers from new levies for up to five years to encourage sector growth. Read More.

📈 CBK Hikes Benchmark Rate to 11-year High

The Central Bank of Kenya’s Monetary Policy Committee (MPC) has increased the benchmark lending rate by two percentage points to 12.5% up from 10.55% previously. The 12.5% rate is at its highest point since September 2012 when it stood at 13%.

With the average commercial bank loan currently charging 19.1% in interest, borrowers are likely to begin paying 21.1% on average in interest on bank loans. Borrowers deemed high risk by commercial banks could pay up to 28.5% in interest on account of risk-based lending models approved by the CBK earlier this year. Read More.

🏠️ Dawn of Informal Sector Mortgages 

Prospective homeowners in the informal sector have a reason to smile as the Kenya Mortgage Refinance Company (KMRC) plans to guarantee home loans for informal sector households through its Risk Sharing Facility (RSF).

The RSF, in its final development stages, aims to guarantee part of loans provided to homeowners in the informal sector, comprising over 80% of Kenya's total workforce. KMRC anticipates the RSF will boost homeownership by reducing credit risk for lower-income borrowers. Read More.

🌱 Incentives for Cotton Farming

The government has increased the price of cotton by 25% from Ksh52 to Ksh65 per kilo with immediate effect. Kenya hopes to increase cotton production from 40,000 acres this year to 100,000 acres next year and ultimately 400,000 acres in the next three years. 

The price increase for cotton is part of a government strategic plan to boost local production and employment through the textile industry. This coming amid a report by the  Food and Land Use Coalition (FOLU) that shows Kenya only realises just 25% of its agricultural potential. Read More.

Want more details? Check our long-form weekly update here:

This week’s finance tips

Welcome to Money254's Finance Tips section, your compass for navigating the ever-evolving realm of personal finance. In these concise and insightful tips, we strive to demystify the complexities of managing your money.

Money254 MoneyTok of the week:

Prefer watching instead of reading? We’ve got you.

In this holiday season, aligning with annual leave, many are contemplating how to make the most of their time off. While numerous activities beckon, consider using this opportunity to set your financial house in order and stay productive. In this week’s video, we explore practical tips on leveraging this short window to enhance your financial well-being.

@money254hq

6 Things to Do With Your Free Time This December The holiday season is here, and it coincides with the time most people get their annual l... See more

That’s a wrap for this week’s Money Weekly! Also, don’t forget to download the Money254 App on the Google Play Store, and remember that we can help you compare over 300 loans, savings accounts, current accounts, and more if you’re thinking about your next product.

Sincerely,

Eric and the Money254 editorial team.