Analysts note that S&P’s recent [B to B+] upgrade and Fitch’s August [B+] affirmation of Kenya’s credit was largely a function of the East African country’s stable economic (real GDP growth of 5.1% y/y in H110, driven principally by the agricultural, manufacturing, and trading sectors) and political outlook.  On the latter point, the country’s new constitution became law in August and leaders point to it as the pillar underpinning an ambitious “Vision 2030” program that seeks in essence to modernize and grow the economy with the help of international investment.  Yet as The Economist pointed out immediately following the referendum, “differences between the country’s leading ethnic groups [are] huge, illustrating a persistently worrying ethnic polarisation of politics” that calls into question the viability of the stability sought. 

Moreover, Barclays Capital opined this month that while the country’s current account deficit “improved significantly in the year to July, falling to USD1.7bn from USD2.2bn last year,” the trade deficit deteriorated marginally (import growth rose on the back of an increase in oil imports–23% of total imports) in that period and can be expected to further widen going forward “should global prices of oil and food increase in 2011” and/or the recovery in Europe stalls since it is “the destination of 20% of the country’s export goods and is the origination port for more than 20% of Kenya’s tourist arrivals.”  Additionally, the government’s infrastructure program “is likely to be stepped up next year” and will also push up spending for investment goods (28% of total imports).  Said fiscal expansion pushed the state’s deficit to roughly 7% of GDP this year, up from 4.4% in 2009, but should temper going forward thanks in part to the country’s USD500mn Eurobond, postponed in 2007 but now planned for 2011.

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