A realignment of political alliances is underway in Kenya and divisions with the ruling Jubilee coalition are increasingly visible. At best, this increases the risk of delays in government decision making at a time when the government needs to drive economic growth (given the persistence of the rate cap until at least March 2020 and the stifling effect it has on private sector credit growth). At worst, it increases the risk of prolonged civic disruption and impairs investment and consumption (although Kenya’s greater institutional strength, e.g. the Supreme Court, compared to, for example, the violent episode of 2007-08, should mitigate this).
In our view, this is yet another top-down risk for Kenya to add to an over-valued FX rate, double-digit twin deficits, slower growth resulting from the rate cap, higher oil price and potentially poor harvest; many of these we have written on before.
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