Economic Impact of the Political Crisis in Kenya : 2008 and Beyond

This note reviews the performance of key
sectors of the Kenyan economy after the power-sharing
arrangement of 2008. Declines in the agricultural,
manufacturing, and services sectors considered in this note
are estimates. Data collected and information interpreted
provides picture of the broad orders of magnitude
anticipated of the economic decline. Assuming that the
power-sharing arrangement holds and the country returns to
normalcy, a base case economic growth rate of about 3
percent could be expected for 2008. If a credible set of
measures is steadily implemented and the fiscal constraint
is managed well, these could add 1-1.5 percentage points to
the base case rate of 3 percent. On the downside, continued
sporadic ethnic violence, inability of coalition government
to reach key decisions, and lack of donor support could
result in zero or negative growth rates in 2008. The note is
organized as follows. Sections I and II present the macro
effects of the crisis and sectoral developments which are
then used to calculate the real output expectations in 2008,
as well as discuss factors that would determine the extent
to which longer term prospects also are affected. Section
III focuses on the poverty situation. Fiscal issues are
taken up in section IV. External accounts are discussed in
section V. Financial markets and issues related to investor
confidence are in section VI.