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Economy could be disrupted by political violence, warns IMF

NEWS
By Dominic Omondi | Jan 1st 2022 | 3 min read
By Dominic Omondi | January 1st 2022
NEWS

IMF representative to Kenya Tobias Rasmussen, Treasury CAS Eric Wafukho, Treasury CS Ukur Yatani and Planning PS Saitoti Torome during the launch of the 2021 Economic Survey report. [Wilberforce Okwiri, Standard]

There is a 30 per cent to 50 per cent probability of the country descending into political instability during this year’s General Elections, the International Monetary Fund (IMF) has warned.

The global lender, in its country report on the 38-month programme that it has with Kenya, noted that there was a high risk of election-related skirmishes materialising within the next 12 months, derailing the country’s growth prospects.

“Political violence could emerge around this year’s (2022) presidential election as seen in previous polls,” said the IMF in the report published last week.

As a policy response, the Washington-based institution advised the Kenyan authorities to remain committed to reforms under the programme - aimed at addressing the country’s debt vulnerabilities by taming expenditure and ramping up tax revenues.

“Within Kenya, upcoming general elections could pressure budget execution and reform implementation and potentially lead to socio-political tensions.”

The country is gearing for the general elections with the two leading contenders - ODM leader Raila Odinga facing off with Deputy President William Ruto in what is promising to be a bruising race to State House.

Political overtones

Most economic forecasters, including the National Treasury and Central Bank of Kenya (CBK), expect the economy to slow down in 2022 due to the heightened political overtones with investors adopting a wait-and-see approach.

In October 2020, CBK Governor Patrick Njoroge down-played the negative effects of the rising political temperatures on the economy, noting that Kenya, having gone through a lot of political risks, had somewhat learnt how to deal with them.

He termed the risks - including the US elections - as “known unknown.” “Coronavirus is the one that is the unknown. The others are in the realm of known unknowns,” Njoroge said.

The business environment is just recovering from the negative effects of Covid-19 pandemic, which saw the economy contract by 0.3 per cent in 2020.

Covid-19, the IMF noted, is still a high risk to the economy with the world grappling with a new variant, Omicron.

However, the economy is expected to pick in the new year, following the easing of the containment measures that had been put in place to curb the spread of the pandemic before slowing down this year as the election temperatures rise.

Kenya’s economy experienced one of the slowest growths in 2008 after the post-poll chaos that was ignited by the disputed presidential results in 2007.

The country’s total output or gross domestic product (GDP) grew by a slow rate of 1.5 per cent in 2008 compared to 6.9 per cent in the previous year, following skirmishes that led to the destruction of properties worth millions and loss of lives.

The global lender is also afraid of political tensions around the general elections or erosion of consensus behind the need for action to reduce Kenya’s debt-related risks.

In September 2019, in a survey done by the IMF, Kenya was ranked as having the second-worst business environment in the world in the run-up to the 2017 polls.

The World Uncertainty Index (WUI) showed that only South Africa fared worse than Kenya in the world between July and October 2017.

Handshake bid

However, after the elections in the fourth quarter, the index showed uncertainty declined slightly, but it was not until after the so-called handshake between President Uhuru Kenyatta and Opposition leader Raila Odinga in the third quarter of last year that investors felt at ease to put their money in the country.

In the fourth quarter of the year 2002, the business climate in Kenya was the most uncertain in the world, confirming findings that elections in the country have tended to depress growth as investors develop a wait-and-see approach.

The IMF team came up with the WUI as a means to measure economic and political uncertainty among 143 countries that represent 99 per cent of the world’s gross domestic product.

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