2013-01-01 00:49:53 - Kenya Business Forecast Report Q4 2012 - a new country guide report on companiesandmarkets.com
It is looking like the International Criminal Court trials of four Kenyans accused of masterminding post-election violence in 2008 will only be held in March 2013 â later than was widely expected. The probable delay to the trials will have ramifications for a range of political issues including the presidential elections, Kenya´s relationship with the international community and the drive to have elections moved to a regional or local Kenyan court.
Although we believe that both revenues and expenditure will fall short of their targets and that the government is likely to allocate a higher proportion of total expenditure to current spending than the budget would suggest, there was not much unexpected news in the Kenyan budget delivered on June 14.
The authorities´ domestic borrowing plans are not particularly onerous, although we caution that a failure to raise the planned foreign financing (about which there is scant detail) would result in increased domestic borrowing and place upward pressure on local debt yields. Although the monetary authorities cut interest rates by more than we and consensus were expecting at their July 5 policy meeting, we see little risk to the currency and to inflation while the central bank continues to keep a tight hold on the money supply via the repo market.
Major Forecast Changes
Changes to our estimates for current account figures in 2011 and oil price forecasts in 2012 and 2013 have led us to revise our forecasts for the external accounts. We now see the current account shortfall reaching US$4.9bn in 2012 and remaining there in 2013. The greater-than-expected interest rate cut in July has led us to revise down our end-2012 interest rate forecast, which we now see coming in at 14.50%, from a previous forecast of 15.50%. Recently released data have led us make a slight downgrade to our 2012 real GDP growth forecast to 4.5%, from 4.9%. Despite the change to the figures, our expectation that economic activity will pick up over the course of the year and that 2013 will see a marked improvement remains unaltered.
Key Risks To Outlook
The weather poses risks to our views on growth, inflation, the currency and the balance of payments position. Another season of inadequate rain would have negative ramifications for all of these. Another major risk stems from elections. Although by no means our core scenario, we cannot rule out the possibility of a repeat of the unrest which followed the last poll in 2007, which would have negative implications for the economy. Our core scenario for Kenyan growth assumes a mild recession in Europe. If the situation ends up being far worse (eg, a break-up of the eurozone), Kenya would be negatively affected through its trade and financial links, not only with Europe but the rest of the world as well.
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