Common sense is never enough...i see alot of common sense but there is no basic macroeconomics...to understand the current crisis u have to know its origin...it all began with the stimulus (more money in circulation) 2 years ago which worsened the BoP cos the stimulus promoted capital demand which resulted in more cash outflow since Kenya is net importer I.e importation of construction materials etc...initially the economy expanded and banks lended more to meet the increased capital demand...in turn production grew (supply) e.g real estate to meet increased consumption (demand)...and it was BOOM time esp 2010 (GDP growth of 5.7%, NSE +36%, Record profits from banksters)...and then prices started rising (Inflation) due to increased demand...Mr inflation started eroding that demand as people's disposable income fell...then all of sudden Wanjiku started crying that houses & food are expensive...then came the drought which made things worse...now back to GoK...the ecomomic expansion gave GoK false hope that it can still run a budget deficit since the economy is growing it can be easily be narrowed latter....so GoK came with a big expansionary budget for 2011-12 which further widened the deficit...question is where was GoK going to get all that money? Local sources of course....so GoK embarked on a programme to borrow 120 Billion from the local market..the same market the private sector (banks) is suppose to borrow from? The competition for funds worsened the liquidity situation in the market and as result interest rates started rising...meanwhile inflation kept on creeping up since demand for goods was still strong in the 1Q of 2011...but the goods where coming at a premium since the ccy has started taking a beating due to the worsening BoP which further eroded disposable income...the more sensitive part of the economy such as real estate started contracting and corporate earnings started to slow...With GoK determined to stay on course with its budget targets & implement the new constitution...GoK stepped up its bIorrowing further worsening the liquity crunch...in the end CBK was forced to inject more money into circulation through reverse repo's which further accelerated the depreciation of the ccy and in turn worsed the BoP to me thats the genesis of the current situation..

This situation could have been easily solved if CBK hiked the repo rate to cool off the economy and prevent the economy from crash lending...or even asking for foreign aid (IMF) was appropriate as you can see from above even if the Shilling recovers it would be because of increase in global risk appetite not because of improving economic fundamentals.

The writer also blogs here http://www.contrarianinvestingkenya.info Check it out!

We as Kenyans are solely responsible for this mess. Let us accept that and work on it! We have messed up our economy based on the mere fact that our leaders have been too greedy to see the big picture.

The Monetary & fiscal laxity is attracting speculators.

Things have changed a lot since 70's. Then there used to be reliable mass transport system by Kenya Bus.

I also tend to think policy makers are too liberal on how the economy runs. Off course allowing too much car imports have multiplier effect as the fuel imports will increases and strain on the infrastructure pushing fuel consumption further.

Am convinced we need more controls otherwise we'll fail spectacularly