Kenya Says Election Jitters Pose Risks to Growth Prospects

NAIROBI (Capital Markets in Africa) – Political uncertainty surrounding Kenyan elections next month and a dry-up in banks’ lending to businesses and individuals could hurt the short-term growth prospects of East Africa’s biggest economy, according to the Treasury.

The Aug. 8 elections may create uncertainty that could weaken foreign and local investor confidence, Treasury Principal Secretary Kamau Thugge said in a statement on the ministry’s website on Thursday.

“The economy remains vulnerable to the shocks emanating from the prevailing drought, ongoing private-sector credit slowdown,” Thugge said. “Public expenditure pressures, especially recurrent expenditures, pose a fiscal risk and potential uncertainties associated with the run-up to elections could dampen short-term growth prospects.”

President Uhuru Kenyatta is seeking a second term in a race against former Prime Minister Raila Odinga, who has warned of possible violence if the election is seen as rigged. Kenyan elections heighten investor concerns because of unrest that engulfed the nation in three of the past five votes. A dispute over the outcome of a December 2007 ballot triggered two months of ethnic violence that left at least 1,100 people dead and slowed economic growth to 1.7 percent in 2008 from 7.1 percent a year earlier.

Behind Target
Kenya’s gross domestic product expanded by 4.7 percent in the first quarter compared with 6.1 percent in the final three months of 2016. Activity was weighed down by agriculture, which shrank for the first time since 2009, according to the statistics agency. The nation may revise its 2017 growth forecast to 5.5 percent from 6 percent after dry weather slashed corn production and caused sugar and milk shortages, Treasury Secretary Henry Rotich said on June 8.

Drought in Kenya, the world’s biggest black-tea exporter, often cuts GDP growth by about 0.6 percentage points, according to the World Bank. A slowdown in credit expansion to 3.3 percent in March from 15.6 percent a year before will also weigh on the economy.

Kenya’s fiscal deficit could improve to a projected 6.1 percent of GDP in 2017-18 from a revised 10.2 percent in the prior year, and the current-account gap narrowed to 6.1 percent in March, Thugge said. Revenue of 1.25 trillion shillings ($12 billion) collected in the first 11 months of the last fiscal year fell short of the 1.33 trillion-shilling target, he said.

Spending is tilting more toward recurrent expenses due to the elections and new salary demand pressures from the health and education sectors, Thugge said. The government may issue a supplementary budget to cover any “unforeseen” expenditure during the election period, he said.

Investors are concerned about “perceptions of electoral fraud” ahead of the vote, Jibran Qureishi, East Africa economist at Stanbic Holdings Ltd., said by phone from Nairobi. 

“That’s what needs to diminish as we get into this election,” he said.

Source: Bloomberg Business News