Discussion Paper No. 106 of 2009 on Implications of the Global Financial Crisis on the Kenyan Economy

Abstract

The Global Financial Crisis (GFC) has been traced back to the late 1990s when the United State (US)’s interest rates on the federal funds were considerably low, leading to liberal lending practices by commercial banks to clients. During the crisis, economic growth in Kenya dipped from 7 per cent in 2007 to 1.7 per cent in 2008, though this drop was largely attributed to internal shocks such as the post-election violence of 2008, and drought. Exchange rates also depreciated following a dip in net capital and financial inflows in the period, foreign reserves reduced as donor flows dropped and as Central Bank used the available reserves to defend the weakening shilling. At the sectoral level, the crisis contributed to a decline in tourist arrivals, manufacturing and in stock market activity...