High long-term and short-term political risks are likely to dent Kenya's economic growth and hurt investors' confidence, according to a new risk report.
A global analysis by Fitch Solutions shows Kenya lags behind its East Africa peers in the political risk index even as the country prepares for general elections next year.
Kenya's short-term political risk index is at 51.3 per cent compared to Tanzania's 61.2 per cent and Uganda 58.1 per cent.
Rwanda and Djibouti have lower short-term political risks at 67.9 and 62.7 per cent respectively.
Fitch Solutions Political and Economic Risk Indices puts 100 per cent as the lowest risk while 0 per cent represents a high risk.
Tanzania and Uganda top the larger Eastern Africa in terms of long-term political calmness with scores of 61.4 and 58 per cent, with Kenya coming third at 56.7 per cent.
Fitch notes that although there is the political will to deal with the insecurity in Kenya, the capacity for a comprehensive government response is limited.
''Unemployment remains high and political divisions along ethnic lines remain wide over the short‑to‑medium. Political contest in such environment is likely to hurt economic growth,'' reads the report.
Globally, Kenya's political risk index grew to rank position 126 out of 201 compared to positions 125 last year and 113 in 2019.
Even so, the country's economic and operational risks dropped to rank position 68 and 121 globally compared to 69 and 122 last year.
The rating agency said that Kenya's economy remains vulnerable to volatility in external financial markets.
''A substantial downturn in mainland China, which is a major financier of Kenyan infrastructure projects, poses significant downside risks for investment in the country,'' it said.
It has, however, forecasted a bumpy recovery in consumer activity this year as the economy gradually re‑opens, with robust agricultural production throughout 2020 boosting farmer earnings and thus household purchasing power.
In addition, Kenya's current account deficit is expected to widen further in 2021 as growth in imports will outpace growth in goods exports and the recovering tourism and travel industry.
Kenya’s current account deficit widened to 5.5 percent in 12 months to May compared to 5.2 percent in the same period last year.
Central Bank of Kenya attributed this to lower service receipts, which more than offset the increased receipts from exports and remittances.
This was the highest trade deficit- a measure of a country's trade with other nations - in two years since 2018 when the country recorded a 5.8 percent trade shortfall with international partners.
A large fiscal deficit and a growing debt burden could see investor sentiment decline over the coming years.
The shilling is also susceptible to periods of high volatility that can feed through into inflation and undermine investor sentiment.
