Kenya: Key developments

Content Type
Country Data and Maps
Institution
Economist Intelligence Unit
Abstract
No abstract is available.
Topic
Politics, Summary, Outlook, Highlights
Political Geography
Kenya

Outlook for 2018-22

  • Political uncertainty remains high after the Supreme Court ordered a rerun of the August 8th presidential election because of irregularities. The new contest is scheduled for October 26th but the opposition is refusing to participate.
  • Opposition protests are gathering pace, posing a small but rising risk of more widespread violence. Other key threats to stability are security risks associated with terrorism and institutional turf wars arising from the reforms.
  • The main policy challenge will be to alleviate structural constraints, such as weak infrastructure. Major capital projects and structural reforms, such as deregulation and regional trade liberalisation, will promote economic activity.
  • We have lowered our real GDP growth forecast for 2018 to 5.3% (from 6.1%) because of the risk of extended political uncertainty. Growth will, nonethe-less, remain healthy, barring shocks, and will quicken to 5.7% a year in 2019-22.
  • Inflation will ease to 6.5% in 2018, barring drought and election-related disruption, after a spike in 2017 caused by high food prices. We expect inflation to average 6.5% a year during the forecast period.
  • The current-account deficit/GDP ratio will trend downwards during the forecast period, to 3% in 2022, supported by growth in nominal GDP and higher earnings from exports, regional trade, tourism and remittances.

Review

  • Raila Odinga, the opposition candidate, has withdrawn from the rerun of the presidential election scheduled for October 26th, blaming the Independent Electoral and Boundaries Commission for resisting reforms and the ruling party for changing electoral laws.
  • The opposition hopes to spark a new election, with fresh nominations, but its withdrawal could spark a constitutional crisis, given the legal requirement to hold the rerun by the end of October.
  • The budget review and outlook paper, published in September, lifts the projected deficit for the 2017/18 financial year (July-June) to 7.9% of GDP, from 6.3% of GDP, because of upward adjustments to recurrent spending.
  • Growth in bank lending slowed to 2.1% year on year in May, and pre-tax bank profits in the first five months fell by 31.1% year on year, highlighting the negative impact of a controversial lending rate cap.
  • Real GDP growth edged up to 5% year on year in the second quarter, from 4.7% in the first quarter, helped by a mild rebound in agriculture.
  • Tourist arrivals grew briskly in the first seven months of 2017, by 12.6% year on year to 543,154, heralding a second, consecutive year of expansion, although extended political uncertainty is a potential deterrent.

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