By James Anyanzwa

The Coalition Government whose term ends on March 4, next year, is set to announce a subdued economic performance data for last year.

The verdict is almost in. Finance minister Robinson Githae while presenting Budget Policy Statement (BPS) in Parliament, gave the strongest indication that the economy is not yet out of the woods. Githae downgrade growth rate to 4.5 per cent for the current year, down from the projected 5.6 per cent.

This is the first time the Government will be reporting an annual slowdown in economic activities after the bloody post election violence stifled GDP growth to 1.7 per cent in 2008, up from 7.1 per cent in 2007.

But Githae was, however, quick to say the revised growth rate still represents resilience, considering that last year was characterised by delayed rains, high inflation, and weaker shilling, all of which combined to restrain growth.

Real gross domestic product, the value of all goods and services produced in an economy during a given period, grew by 4.2 per cent in the first nine months of last year compared with 4.9 per cent in a similar period in 2010.

The growth was mainly attributed to continued expansion in building and construction, wholesale and retail, financial intermediation and agriculture and forestry as well as hotels and restaurants.

"Leading indicators for the fourth quarter of 2012 still point to continued growth, albeit at a slower rate," said Githae.

This worrying trend is attributed to a combination of both domestic and external factors, which hit various sectors of the economy last year.

The Economic Survey 2012 scheduled to be released by Planning Minister Wycliffe Oparanya next month is likely to capture slowed economic indicators.

It’s obvious to all that the economy has been out of balance for a long time, but a number of external shocks exposes Kenya’s unsustainable external position.

The rapid rise of oil prices in the first half of 2011, and the Euro crisis in the second half of the year, as well as the drought in the Horn of Africa, triggered the depreciation of the shilling. Recovery has since been slow.

Political stability

According World Bank latest report, 2012 will not be an easy period for the economy.

However, any meaningful gains, it says, will depend on whether the government is able to effectively manage the current crisis, maintain political stability in the run-up to the elections, and address the security challenges arising from the conflict with Somalia.

"The pace of current growth is still well below the target of Vision 2030 of 10 per cent necessary to draw more Kenyans into employment and reduce poverty," said Githae.

Recent budgets have been geared towards supporting growth to mitigate the adverse effects of domestic and external shocks.

Accelerating growth further, he reckons, requires stepping up both public and private investment to raise Kenya’s economic competitiveness and create more employment opportunities.

The Government has taken various policy actions to rein in on inflation. A combination of tight monetary policy and fiscal restraint as well as easing food and oil prices and firming up of the shilling has worked to support easing of inflation.

Elections are prone to uncertainty because they have often resulted in violence and new policy regimes.

According to the World Bank report, the current economic circumstances are more challenging than in 2007. The Government will need to control public spending in light of inflation pressures and public debt burden.

"Although the government has committed to reducing expenditures, it will face spending pressures related to the devolution process, and to organising and financing the 2012 elections.

The 2012 elections will not only usher in a new national government, but also a new system of devolved government," indicates the report.

It further reckons that businesses will need to adjust to new institutional arrangements at the local level, that are yet to be fully developed, and to the possibility that a new government may come in with new policies.

"The result is likely to be a wait-and-see attitude from the private sector. But there is also an upside dividend if the election is handled well."