critical – countercyclical fiscal policy to sustain demand through supporting jobs is important at the initial recovery period – in the medium term, fiscal policy should be directed firmly towards growth and long term development objectives – adequate capital spending should be a top priority to address large deficits in infrastructure and human capital • central banking in post - crisis africa – inflation in most countries has reverted to single digits, and the likelihood of a significant liquidity overhang is minimal – in many countries exchange rates have also been strengthening towards the precrisis level. re - correction after the crisis – all these factors point towards retaining the current supportive monetary policy stance in most countries and for central banks to avoid conventional wisdom to raise interest rates soon – central banks should be in no hurry to tighten their policy rates when underlying inflation is below target. they need to continue with the same monetary stance until the expected inflationary pressure threatens instability in the economic environment what the central bank of kenya has done during the crisis • the central bank of kenya – has pursued an accommodative monetary policy stance to help cushion the economy from the negative effects of the global financial crisis • measures taken so far – reduction of cash reserve ratio from 6 % to 4. 5 % ( 100 basis points in december 2008 and 50 basis points in july 2009 ) – thus releasing an equivalent of ksh. 12. 5 billion for lending to the economy – consecutive reduction of the central bank rate from 8. 75 % to 7. 75 % to signal to banks to lower lending rates – allowing a reduction in foreign exchange reserves to less than 3 months to take pressure off the depreciation pressure of the kenya shilling vis - a - vis the hard currencies ( had the cbk not allowed this, the inflationary effect of the shilling ’ s depreciation would have been worse – in terms of intermediate imports, oil prices etc ) kenya ’ s fiscal policy attempts to spur economic activity during economic downturn the 2009 / 10 finance bill took recovery head on – six solutions : • commitment from treasury to maintain a stable macroeconomic environment • creating fiscal space through expenditure rationalization from non - productive sectors / activities to productive sectors • reducing the cost of doing business • developing key infrastructure facilities and public works to stimulate growth, employment and poverty reduction • fiscal stimulus through measures that expand economic opportunities in rural areas for employment creation global outlook • the fear of the “ second great depression ” has subsided – impact of the crisis on output has been ameliora

##favorable investor sentiments : concerns about global recession and negative impact on domestic economies impact of the crisis differs across countries and regions – growth 2009 * 2010 * growth kenya 7. 1 1. 7 3. 0 4. 0 tanzania 7. 1 7. 4 5. 0 5. 6 uganda 8. 4 9. 0 7. 0 6. 0 sub sahara africa 6. 9 5. 5 1. 1 4. 1 eac 7. 4 5. 8 4. 5 5. 1 comesa 11. 1 8. 6 3. 1 6. 0 sadc 7. 2 5. 1 – 0. 9 3. 4 fiscal space has suffered - ( overall fiscal balance % of gdp ) kenya – 3. 0 – 4. 40 – 5. 7 – 5. 5 tanzania 0. 0 – 5. 4 – 5. 7 – 5. 1 uganda – 1. 1 – 2. 0 – 2. 6 – 2. 9 sub sahara africa 1. 2 1. 3 – 4. 8 – 2. 4 eac – 1. 6 – 3. 9 – 3. 5 – 4. 7 comesa 2. 7 1. 7 – 3. 4 – 2. 6 ( source : imf africa regional outlook – 2009 ) ssa not spared by the crisis : see selected indicators 2009 * 2010 * real gdp ( growth rate ) oil exporting oil importers 6. 9 9. 2 5. 7 5. 5 7. 0 4. 7 1. 1 1. 9 0. 8 4. 1 5. 5 3. 3 consumer prices oil exporting oil importers 7. 1 5. 6 7. 8 11. 6 10. 5 12. 1 10. 5 10. 6 10. 4 7. 2 8. 9 6. 4 exports as % of gdp 38. 9 41. 0 31. 2 33. 5 imports as % of gdp 36. 2 38. 2 34. 2 34. 6 fiscal balance ( incl. grants ) oil exporting oil importers 1. 2 3. 6 – 0. 2 1. 3 6. 3 – 2. 0 – 4. 8 – 5. 9 – 4. 2 – 2. 4 1. 5 – 4. 7 current account ( incl. grants ) oil exporting oil importers 1. 1 14. 4 – 6. 2 1. 0 14. 0 – 7. 6 – 3. 1 1. 6 – 5. 6 – 2.