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Kenyan infrastructure gains will mask slippage risks

Monday, July 3, 2017

Subject

Kenyan fiscal pressures.

Significance

Economic headwinds will culminate in slower GDP growth this year as drought, slowing credit and pre-election uncertainty weigh on activity. Growth is forecast to decelerate to 5.3%, from 6.0% in 2016, but could pick up pace again to 5.8% next year, as infrastructure development boosts productivity. Benign external conditions, along with policy prudence, has helped stabilise macroeconomic variables and consolidated the government's credibility. However, the elevated fiscal deficit remains a source of vulnerability.

Impacts

  • Despite robust performance, growth is still significantly below the 8% needed to lift Kenya to upper-middle income status by 2030.
  • Interest in the planned Eurobond could surpass levels achieved by West African peers this year given better progress on structural reforms.
  • While Kenya's first mobile bond or 'M-Akiba' proved successful, institutional lenders will remain the main source of government financing.
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