Kenya Country Risk Report Q4 2018
President Uhuru Kenyatta's 'Big Four Agenda' plan will likely face a number of hurdles, limiting its ability to boost economic growth. In addition to the govern-ment's weak fiscal position, implementation of each of the four objectives will likely be slowed by structural challenges.
The weakening of the Kenyan shilling will be tempered by increasing political stability and a brightening economic outlook in the coming months. Currency pressures will be broadly downward in the longer term.
The June announcement that Kenya intends to remove its multi-year lending rate cap will ensure a smoother transmission channel for monetary policy in the country. With growth still somewhat sluggish in Kenya and inflationary pressures likely to be transient, the removal of the cap will spur modest further easing.
Kenya's current account deficit will narrow modestly over the short-term. An improvement in weather will boost agricultural exports, offsetting robust import growth on the back of higher consumer confidence and higher oil prices. Strong foreign direct investment and lending inflows will also keep the overall external position sustainable.
Discussions over a referendum on possible changes to the constitution will remain high on the agenda in the coming months, given increasing demands by key opposition figure Raila Odinga. A campaign by President Uhuru Kenyatta to tackle graft will likely continue to make headlines, but this is unlikely to combat the problem on a long-term basis owing to structural headwinds.
The Kenyan economy remains vulnerable to volatility in external financial markets. A substantial downturn in China, which is a major financier of Kenyan infra-structure projects, could weigh on investment into the country.
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