Country Risk Service Kenya February 2013

Country Risk Service Kenya February 2013

Overview

Devolution and a stronger legislature will curtail presidential powers after the elections, scheduled for March 2013. There is some risk of election-related violence. Inflation is forecast to retreat from 9.4% in 2012 to 5.6% in 2013, and to move within the 4.8-6% range in 2014-17, helped by prudent monetary policy and more stable global prices (barring serious drought). The current-account deficit will edge down from an estimated 9.6% of GDP in 2012 to 8.3% of GDP in 2013. The gap will continue to narrow in 2014-17, helped by steady growth in earnings from exports, tourism and remittances.

Key changes from last month

Political outlook

The independent election commission in late January cleared eight candidates to vie for the presidency. The main frontrunners are Raila Odinga, Uhuru Kenyatta and Musalia Mudavadi.

Economic policy outlook

Parliament passed a supplementary budget in mid-January, lifting spending by KSh58.8bn (US$680m) to cover wage rises, the election and heightened security.

The Central Bank of Kenya cut the benchmark, Central Bank Rate (CBR) by 150 basis points to 9.5% in January, the fourth reduction in six months, following a decline in inflation to 3.2% in December, the lowest for more than two years.

Economic forecast

Real GDP growth accelerated to 4.7% year on year in the third quarter of 2012, driven primarily by agriculture, following favourable rains. The Economist Intelligence Unit's forecast remains essentially unchanged: real GDP growth is expected to rise from 4.1% in 2012 to 4.8% in 2013, helped by lower interest rates but held back by global fragility. Growth will accelerate in 2014-17, although structural constraints will persist.

Do to the nature of this product there is no table of contents.