Country Report Kenya March 2009

Outlook for 2009-10

• Kenya's coalition government between the president, Mwai Kibaki, and his main rival, the prime minister, Raila Odinga, is likely to remain intact, although it will be vulnerable to in-fighting and competition for influence.
• Economic policymaking will be challenging during the forecast period, given the global slump and weak domestic growth. The government will push ahead with reforms but political feuding may hamper implementation.
• After slowing sharply in 2008, GDP growth will weaken further in 2009, to 1.8%, owing to weak commodity prices and the global recession. Growth is expected to recover to 2.7% in 2010 as the global economy improves.
• Inflation is expected to subside from 26.3% in 2008 to 16.5% in 2009, before falling more quickly to 6.5% in 2010, assuming no new oil- or food-price shocks and the maintenance of political normality.
• The current-account deficit is expected to fall from 6.4% of GDP in 2008 to 5.1% of GDP in 2009, owing to lower imports. A recovery in exports and other capital inflows will help to cut the deficit to 4.1% of GDP in 2010.

Monthly review

• The UN investigator, Philip Alston, in a provisional report, has accused police death squads of carrying out numerous executions.
• The government's KSh18.5bn infrastructure bond was a success, achieving an oversubscription. However, the finance minister has introduced spending curbs and a hiring freeze because the fiscal accounts remain under pressure.
• The High Court has struck down several parts of the new work injuries act for being unconstitutional, in a move that will please employers. Other restrictive new labour laws also face legal challenges.
• The banking sector performed relatively strongly in 2008, with most banks reporting robust profit growth. However, non-performing loans are rising again, suggesting that 2009 will be a year of consolidation.
• The stock market continued to fall in February, by 51% year on year, owing to a global decline in equities and weak domestic regulation. The government has launched a new reform drive to rebuild confidence.
• Kenya's current-account deficit nearly doubled to a record US$2.2bn in 2008 (about 6.4% of GDP) owing to a sharp rise in the trade deficit (as oil imports soared) and a stagnant invisible trade surplus (as tourism shrank).