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Economists have expressed concerns that the financial turmoil rocking key regional markets, including Kenya, coupled with the upcoming election may delay or derail post-Covid 19 reforms.

In its mid-year economic review, Fitch Solutions which is a credit research firm affiliated to Fitch Ratings, said the looming general elections slated for August 9, will likely hurt the country’s fiscal health, noting that growth will return “close to trend, but vulnerabilities will remain.”

Hawkish developed markets stance

Fitch says elevated inflationary pressures, “combined with a more hawkish stance by developed market central banks” have prompted regional central banks in countries like Nigeria and Kenya to hike interest rates in the first half of 2022.

Annual inflation accelerated to 7.9 per cent in June from 7.1 per cent a month earlier, to hit the highest level since August 2017, as the cost of food products continued to rise sharply.

Inflation – which is the rate at which the value of a currency is falling and, consequently, the general level of prices for goods and services is rising, has continued to build upon account of rising oil prices triggered by the ongoing war and its direct impact of a weaker currency via imported inflation.

Key food items such as cooking oil, maize flour, milk and wheat products have noticeably skyrocketed since the year began, straining the majority of Kenyan households that are still dredging from the economic hardships left by Covid-19.

Key political coalitions – the Azimio La Umoja-OKA and the Kenya Kwanza – have all vowed to shore up the middle class, review taxes on the common man, lower electricity costs and restructure the country’s debt portfolio among other issues, in what observers believe will be one of the closely contested races in recent history.

“Elevated price pressures following Russia’s invasion of Ukraine has led to increases in inflation in many major markets but only sporadic protests thus far. However, political tensions have risen in East and Central Africa,” notes the firm in its latest survey which netted the Sub-Saharan region.

This as the pandemic which is presently on its fourth wave in Kenya, triggered an unprecedented global economic recession in modern history, considered a crisis of greater magnitude than the Great Depression of the 1930s.

Fiscal consolidation

The invasion of Ukraine by Russian troops in February this year left behind logistical nightmares across the global supply chain, triggering abnormal inflationary pressures not only regionally but also across the world.

Fitch estimated that Central Bank of Kenya will increase the anchor interest rate to 8 per cent from the current 7.50 per cent.

The firm says governments will prioritise fiscal consolidation as well as an acceleration in monetary policy tightening amid rising inflationary pressures.

“Kenya’s FY2022/23 (July-June) budget projects a narrowing of the deficit to 6.2 per cent of GDP from an official estimate of  8.1 per cent in FY21/22,” read the report in part.