Dear Kenyans be ready for heavy economic turbulence, tough times ahead

Dear Kenyans be ready for heavy economic turbulence, tough times ahead

By Empraim N

Happy new year everyone. I wish there were better prospects ahead for the country on the economic front. However, it is important for all of us to reflect on the issues we have discussed these last four years because we are approaching crunch time. 2019 will be a defining moment in many ways.

1. The fiscal space continues to contract and with it reduced government spending. The economy has been running on the engine of debt driven government spending. The private sector engine has been long dead. Now the second engine is about to fail. The government has maxed out borrowing and taxation capacity. It is hard to think of an easy way out. The public debt crisis will worsen.

2. The country has no capacity to respond to economic shocks whether external or internal. Any shock such as drought or shilling depreciation will have amplified consequences. For instance, depreciation of the shilling by one shilling to the dollar adds KShs 26 billion to our public debt without additional borrowing.

3. The negative impact of interest rate capping continues. Removing the caps will make it very expensive for government to borrow while maintaining them will continue constraining the economy. The best way out is for CBK to increase the interest rates by a modest amount until such a point where an equilibrium is achieved by increasing access to credit by private sector without making it too expensive for government to borrow. If CBK continues with its reckless policy of reducing the base rate, the situation will worsen.

4. Fears of a global recession don’t make things any easier. During the global financial crisis in 2007/2008 Kenya was able to hold up despite the Post Election Violence. That is because the economy was strong and stable hence could withstand serious shocks. This is not the case now. A global financial crisis will have serious contagion effect on our economy. We can only hope the global economy remains stable.

5. I continue to advise Kenyans to prepare for hard times. It would be a shame for anyone to be caught by surprise despite all the information and warnings we have shared. Expecting this government to admit we are in a mess and change course is being foolish. The government is clueless and incompetent. You are your own saviour.


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