WB predicts gloom in Kenya will end in 2012

A week to the end of the year, trend analysis shows Kenya has posted poorest economic growth since 2009.

This has been attributed to the rising cost of living largely driven by high cost of energy, food and a weak shilling. But all is not gloom for the economy next year.

The World Bank predicts that the economy will grow by 4.3 per cent this year, down from earlier predictions because of what experts have explained as prevalence of economic shocks.

However, next year is expected to have better performance with an estimated growth rate of five per cent if inflation and exchange rates are contained.

Senior economist Jane Kiringai said Kenya needs to urgently rein-in inflation and suppress growth in debt.

Across the board, analysts are optimistic that the economy will perform better in the coming year given that the unrest in the Arab countries where the bulk of petroleum products comes from is nearly settled which means relatively stable prices of oil, a major components of Kenyan imports.

“With the expected rains and political stability coming back into the oil producing countries, the future looks promising,” said Jacob Oduor a senior analyst at Kenya Institute of Public Policy and Research.

The economic turmoil this year did not come as a surprise to Kenyans who have watched their cost of living rise in the first 11 months.

Inflation stood at 19.2 per cent in November, almost four times more from the 5.42 per cent in January.

The country’s economic troubles in 2011 were documented and released three weeks ago in a meeting held in Nairobi attended by economists, policy makers, the public and private sector as well as journalists.

Among the thorny issues that came out in the report was the depreciation of the Kenya shilling against the US dollar and other world’s major currencies.

The shilling started to cede ground to the dollar in early May when it traded at Sh84 against the green back.

The slide was gradual, but in July the trend gained pace, with the shilling hitting the Sh90 mark to the dollar by the middle of that month.

By September, the local currency was in a free fall and by mid-October, it took a swan dive, hitting Sh107.

The currency troubles pushed the head of state and Parliament to intervene – with great discomfort to the Central Bank and Treasury.

President Kibaki turned to the International Monetary Fund for a Sh25 billion loan as additional financing to fix the shilling while Parliament formed a special committee to investigate the currency volatility which put the blame squarely in the hands of the Central Bank of Kenya for failing to intervene when it mattered most and commercial banks for taking advantage of the existing loopholes in regulation to make a kill at the expense of the economy.

“Most of the sectors registered slower growth during the third quarter of 2011 compared to the same quarter of 2010, indicating that the effects of the slowdown had started spreading across the economy,” said the Kenya National Bureau of statistics in the third quarter economic update.

It is now highly unlikely that Treasury’s projections posting annual growth rate of 5.3 per cent this year will be met given that the expansion of the GPD has fallen below five per cent in the first three quarters of the year.

The economy grew by 4.9 per cent in the first quarter and 4.9 per cent in the second.

This is compounded by the fact that the country is operating on a negative current account which simply means that our exports, mainly agricultural products are less that our imports.

Economists such as Wolfgang Fengler of the World Bank warned that unless Kenya balances its economy through stronger exports, it may not achieve its projected growth rates.