Event

The supreme court in Kenya has ruled that the elections that where organised on 8 August are invalid due to irregularities in the electoral process that are large enough to jeopardise the integrity of the vote. This means that new elections are to be held in 60 days. It comes after the incumbent president, Uhuru Kenyatta, was declared winner of the elections by the election commission. Immediately after the election, his opponent Raila Odinga claimed that the election was fraught. Violence that erupted after the vote has killed at least 18 people.

Impact on country risk

This is the third time that the election is disputed. Political violence after the 2007 elections has led to the deaths of 1,200 people and to 600,000 people being forced to leave their homes. In 2013, Odinga has also claimed that the poll was rigged, but his case was then rejected by the Supreme Court. The election dispute is likely to lead to a period of increased economic and political uncertainty in the country. It comes at a time when the country is trying to implement a fiscal consolidation plan in order to reduce the significant public deficits which stood at 8% of GDP in 2015 and around 7% in 2016. In line with the current IMF programme it is currently foreseen that the fiscal deficit is brought into line with the East African Monetary Union’s budget deficit ceiling of 3% by 2020. Increased political uncertainty is making it less likely that this target will be achieved. This would be problematic given that the external debt build-up is already impeding the country’s MLT political risk outlook (which currently is in category 5). The interest rate cap introduced in August 2016 to address high borrowing costs weighs on the systemic commercial risk (which is currently already in category C). After all, instead of lowering interest rates, the rate cap – at 4% above the central bank’s benchmark rate - is reducing commercial borrowing. While the rate cap is expected to be changed or annulled, this is likely to happen only after the new government has taken office and it will therefore continue to put pressure on the country’s commercial risk rating.

Analyst: Jan-Pieter Laleman, jp.laleman@credendo.com