The main challenge facing policymakers during the early part of the forecast period will be to harness the fragile global recovery and facilitate faster economic growth without stoking macroeconomic imbalances. The medium-term focus will shift towards tackling structural constraints. The international rebound will gradually relieve financing constraints, while fiscal and monetary stimuli at home-as well as structural reforms such as deregulation and privatisation-will promote economic activity. However, the policy environment will remain vulnerable to exogenous shocks, including drought and volatile commodity prices, and to in-fighting within the political establishment, which will intensify in the run-up to the 2012 election. Kenya embarked on a new, three-year IMF-backed reform programme in January 2011, supported by a US$500m extended credit facility that will focus on fiscal reforms, investment in infrastructure and implementing the new constitution. Continued IMF backing will encourage support from other donors, but corruption and weak governance will continue to strain relations with external backers and deter investment.

The government aims to accelerate the pace of structural reforms in 2011-12, including deregulation and trade liberalisation (especially within the EAC). The state also plans to dispose of full or partial stakes in up to 25 state enterprises in a range of sectors, either by selling shares to strategic partners or via flotations on the Nairobi Stock Exchange, although delays are highly likely-and sell-offs involving key infrastructure parastatals may be mothballed, at least in the short term. An overhaul of company law, insolvency law and capital markets is also planned, although some reforms may fall victim to the heavy legislative agenda and be delayed until 2013-15.