Kenya's Quest for Growth Stabilization and Reforms - But Political Stability?

32 Pages Posted: 20 Apr 2016

Date Written: August 1, 2008

Abstract

Kenya has long had a reputation of being politically risky, manifested in corruption, uncertainty about policies, and the importance of political connections in doing business. Kenya began its economic liberalization in 1993. Reform picked up speed after a tightening of aid by donors on governance grounds and an attempt to re-establish credibility following the costly Goldenberg scandal uncovered in 1992. But tangible results in the shape of favorable government debt dynamics and a pick up in growth took a decade to materialize. The paper argues that the peaceful presidential election and transfer of power in December 2002 was central to the economic upswing after 2002. The subsequent decline in political risk was singled out by the private sector as an important development. The paper draws on an analysis of debt dynamics, the evolution of domestic interest rates, and the latest Investment Climate Assessment to present evidence on the criticality of low political risk in facilitating good economic outcomes after 2003. The December 2007 elections have highlighted other aspects of political risk - ethnic and social tensions with roots in inequality. The findings of this paper underline the importance of establishing a foundation for long-term political stability and social cohesion in view of the disruptions following the December 2007 elections. This process is likely to be at least as difficult and lengthy as fundamental economic policy and institutional reform.

Keywords: Debt Markets, Emerging Markets, Public Sector Expenditure Analysis & Management, Access to Finance

Suggested Citation

Bandiera, Luca and Kumar, Praveen and Pinto, Brian, Kenya's Quest for Growth Stabilization and Reforms - But Political Stability? (August 1, 2008). World Bank Policy Research Working Paper No. 4685, Available at SSRN: https://ssrn.com/abstract=1233061

Luca Bandiera (Contact Author)

World Bank ( email )

1818 H Street, N.W.
Washington, DC 20433
United States

Praveen Kumar

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

Brian Pinto

Independent ( email )

No Address Available
United States

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