Resilience guarantees an economically brighter post-election future for Kenya

Nairobi is bustling with economic activity as Kenya recovers from the sluggish days that ran up to the announcement of William Ruto as the President-elect.

A visitor would be forgiven for thinking there was no election.

The country is emerging from the 2022 General Election a mature democracy where even the tight competition between Kenya Kwanza and Azimio coalitions did not degenerate into hate politics or violence and due process was respected by both camps.

With the stability, it is poised to break the election curse on the economy, which tends to dip over two percentage points during polls.

Barcelona-based FocusEconomics, which polls 15 world-leading banks, consultancies and think-tanks, sees the economy expanding by at least five per cent this year, barring political violence.

The country looks poised to shake off the Covid-19 global slump and other challenges in emerging markets.

Covid-19, the Russian invasion of Ukraine with its attendant inflation, energy insecurity, currency crises and fears of electoral challenges would have weighed heavily on Kenya.

Instead, it has weathered the challenges and signs that the worst is behind us.

First, Kenya Revenue Authority (KRA) recorded a monumental revenue collection of Sh2.031 trillion for Financial Year 2021/2022 (July 2021-June 2022) compared to Sh1.669 trillion in FY 2020/2021.

The taxman exceeded its revenue collection target by Sh148.9 billion in the fiscal year ended June 2022, boosted by higher collections in corporate, payroll and value-added taxes.

The International Monetary Fund (IMF) lauded the performance, saying it created fiscal space to temporarily cushion the economy from the impact of increasing international fuel prices on households and businesses yet meeting programme targets.

The IMF is the second positive aspect of the economy, which suffered a slowdown due to Covid-19, which exposed Kenya to debt sustainability risks.

The economy was on course, with comfortable access to the international debt market, a healthy economic boom and a stable macroeconomic environment. 

Affordable dollar credit

But the global debt market became risk-averse, and countries could not access affordable dollar credit to plug the budget deficit and refinance maturing loans.

The country also needed to protect its people and traded off taxes by lowering corporation, income and value-added taxes, widening the deficit.

A stable state with an open and transparent government, however, Kenya secured help from the IMF and the World Bank, which have given it multi-billion-shilling loans over two years—with positive effects on finances, like reduced exposures to expensive commercial debt, the lengthening of debt maturity and credibility to reform service delivery.

Last year, Kenya shunned a syndicated loan even when Eurobonds became too expensive, opting to rationalise expenditure instead.

This brings us to the third issue: The Eurobonds were not expensive because of Kenya’s profile but since interest rates are rising in the developed world as US and European central banks battle inflation there.

Global shocks increased commodity prices and strengthened the dollar, making it harder to import and obtain commercial debt.

Central bankers raised rates which draw capital from countries like Kenya, depreciating the local currency.

The importer needs more dollars to buy expensive commodities and even more shillings to buy dollars.

To cushion the country against the absolute impact of this situation, the country has again dipped into its taxes to subsidise Unga and fuel and borrowed from the multilateral bodies to support dollar demand.

This is a temporary measure as things improve with fuel prices dropping below $100 a barrel and supply chains starting to correct.

Inflation is coming down in the developed world, reducing central banks’ pace of tightening, which will ease currency pressures.

Despite the risks and gloomy projections by international media such as Bloomberg, Kenyan authorities have done their best to navigate the tough times and have succeeded in keeping the economy stable.

Mr Kwinga is a political scientist. [email protected].