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

All the signs are there, but no one anticipates the black swan. You see, we know it all, don't we? Until the perfect storm hits!

- inflation at all time high
- equity market suffering
- upcoming elections
- USD KES rate
- drought
- growing budget deficit
- unsustainable interest rate
- property prices up the roof

For a net importing country a weak currency is not desired.

Policywise we should not ignore the benefits of the liberalization to the general economy, it has made us more competitive in the global markets.

We could also shift from this obsession with imports right now there are kenyans wearing imported second hand knickers!
The result the highest trade deficit ever. Though it may too late for incubation protection of some of these industries - fact remains its been done in places like south africa.

Some countries are so intentional in their efforts to reduce trade imbalance. Why shouldn't we do the same?

http://www.economist.com/node/21530136

http://www.economist.com/node/21530144

Haiya, Ephraim Maina, him of Kirinyaga, was given the Thika - Nyeri road in 2003. The bugger has not finished it to date.

[quote=the deal]Kenya Q-Q GDP contracts by 4.6% while y-y up 4.1% while current account deficit doubles I expect the 3Q GDP numbers to be worse at this rate Kenya will enter negative growth by 1H 2012 http://af.reuters.com/ar...s/idAFL5E7KT3IE20110929[/quote]
Cheers.