The dawn of a new year is a good time to reflect on the past year and look ahead. As it turns out, 2012 was a pretty average year for Kenya, mainly because the much anticipated national and regional elections, which will determine the course of the nation and its economy for years to come, were postponed to March next year.
Why do I say that 2012 was such a normal economic year for Kenya? Let's rewind 12 months back. Kenya was facing major macroeconomic challenges: inflation stood at almost 20 per cent, the exchange rate was volatile and public debt increased markedly due to the weakening shilling. Economic pessimists predicted a global economic storm as the challenges in the euro-zone seemed unmanageable.
Today, Kenyans find themselves in a much more comfortable position. Inflation declined continuously during 2012 and by end November it fell to a very low 3.5 per cent. The Central Bank's "shock therapy" (an increase in interest rates by almost 10 percentage points at the end of 2011) clearly paid off and the Government's fiscal prudence contributed to restore economic confidence.
Bringing the country back to sounder macroeconomic fundamentals was not cost-free. With higher interest rates, activity slowed down: as a result, economic growth will most likely not reach the five per cent mark in 2012 (instead the World Bank's forecast is 4.3 per cent, which is very similar to 2011).[view whole blog post ]