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.
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
