Kenya must tackle the basics to get economy back on track

Kenya’s monetary policy is at a crossroads, the exchange rate volatile and prices of essential goods on a steady rise. After nearly seven years of relative calm, the economy appears to have been invaded by the forces of destruction that cannot be contained by the known instruments of policy.

Kenya is for the first time in nearly five years back to a point where the Central Bank cannot robustly defend the shilling – its reserves having been eroded to a four-year low even as the trade deficit continues to widen.

Government finances are not in good shape either raising the need for more borrowing. This is the reason that contrary to all expectations, the Central Bank Wednesday released more shillings into the market to ease liquidity as it prepared to borrow Sh10 billion from the same market.

That had the effect of pushing the shilling farther down the exchange rate slope to Sh97.25 to the dollar – the lowest ever since exchange rate controls were removed in 1994.

Adding impetus to the currency troubles are the acute supply shortages in key segments of the economy. A prolonged drought has drastically reduced the amount of cheaper hydro-electric power that is on the national grid, forcing the country to rely on thermal power that has more than doubled the cost of electricity to consumers.

Drought has also caused acute supply shortages of key consumer goods such as sugar, maize meal and milk sending prices to unprecedented levels.

These shortages have to be dealt with through importation of whatever is in short supply using the weak shilling. That adds more pressure on the local currency repeating the circle all over.

A casual look at these challenges may give the impression that they are temporary.

The reality is that they are the fruits of monopolization of the national policy making machinery by a short-sighted elite as is manifest in the annual allocation of resources via the national budget.

It has become clear that the root cause of all this lies in our collective refusal to recognise that no meaningful development will take place in Kenya until we get the basics such as feeding ourselves and meeting our energy needs