Destination Point Kenya

The Kenyan economy has been in a recession for the last three years. Real GDP growth fell from 2.3 per cent in 2006 to 1.8 per cent in 2007 and further to 1.4 percent in 2008. The continued slowdown in economic performance was reflected in virtually all the key sectors of the economy. In Agriculture, the growth fell to 1.2 per cent in 2008 from 1.5 per cent recorded in 2007 mainly due to fall in the prices of coffee and tea on the international market and inadequate rainfall in major food growing areas. Growth in manufacturing further slumped as a result of competition from cheap imports, dilapidated infrastructure and lower aggregate demand. Transport sector recorded a recovery despite high operational costs. Growth in government expenditure slowed down on account of tight fiscal policies it pursued. In the financial sector interest rates remained relatively high over the period under review. Overall, real gross fixed capital formation fell by 4.5 per cent in 2008. The country’s fiscal deficit widened as a result of more allocation of funds to rehabilitation of infrastructure. Net total domestic borrowing substantially rose to stand at K£ 1,157 million reflecting the need to offset the higher government deficit.

Inflation has been contained from a peak of 46.0 per cent in 2002 to 3.5 per cent in 2008, the lowest in the last four years. The annual average inflation rate in 2008 was 3.5 per cent due to the tight monetary and fiscal policies pursued by the government.

On international trade, overall balance of payments deteriorated further mainly due to decreases in capital inflows and increases in official long term capital outflows. This deterioration occurred despite increases in tourism receipts, which rose from K£ 875 million recorded in 2007 to K£ 1,068 million in 2008. The international reserves increased, while the Shilling weakened against all the major international currencies.