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Drought and costly fuel slow down GDP growth

GDP Growth in kenyaThe Kenyan economy grew at an estimated 4.5 percent last year as compared to the 5.6 percent in the previous year. This was due to the problems escalated due to scare rainfall, high fuel prices and a weak shilling. Treasury Permanent Secretary Joseph Kinyua said the economy would, however, rebound to 5.3 percent this year, driven by stable exchange rates and falling inflation.

The 4.5 percent growth rate however beat the worst-case scenario of 3.5 percent projected in the Economic Survey released in May last year and is slightly higher than the 4.3 percent estimated by the World Bank last December. The Bretton Woods Institution had initially projected that the economic growth for 2011 would be 4.8 percent.

[sws_blockquote_endquote align=”left” quotestyle=”style02″]As a result of these (multiple shocks) developments, real GDP is estimated to have grown by about 4.5 percent in 2011, down from an earlier projection of 5.1 percent,[/sws_blockquote_endquote]

– Joseph Kinyua
The annual banking and finance conference in Nairobi

[sws_blockquote_endquote align=”left” quotestyle=”style02″]Going forward, real GDP growth is expected to rebound at about 5.3 percent in 2012 and rise further in the medium term, barring further shocks to the economy,[/sws_blockquote_endquote]

– Joseph Kinyua

[sws_blockquote_endquote align=”left” quotestyle=”style02″]For 2012, the World Bank projects a 5.0 percent GDP growth. Inflation fell for the third consecutive month in February to 16.69 percent while the exchange rate has recovered from 107 to the dollar in October last year to settle around 83. “The policies that the government put in place are beginning to take effect. The immediate goal is to bring inflation down so that we can see interest rates come down,[/sws_blockquote_endquote]

– Joseph Kinyua

The Treasury has cut down expenditure from the initial Ksh1.155 trillion to about Ksh1.14 trillion for this fiscal year as part of reducing aggregate demand, while the Central Bank (CBK) tightened the monetary policy stance to 18 percent towards the end of last year to curb credit expansion that contributed to high inflation and put pressure on the Kenyan shilling exchange rate against the hard currencies.

Kenya’s economic growth has failed to hit the planned 10 percent per year under Vision 2030 due to shocks in the past five years beginning with the chaos that followed the 2007 general elections. The global financial crisis in the closing months of 2008 also had its impact on the economic development of Kenya and it is now expected that it will be affected by the economic difficulties in the EU countries.

Due to the eurozone crisis, the International Monetary Fund has projected that the global economic growth will decline to 3.25 percent this year from 4.0 percent last year. In the Eurozone, a mild recession is expected, which will have spill-over effects on other economies in both the developing and developed world, feels Mr. Kinyua.

For the Kenyan economy to grow faster, the Treasury Permanent Secretary feels that it is necessary to involve a bigger proportion of the population in the financial sector.

Image courtesy: FreeDigitalPhotos.net

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