Outlook for 2011-15

• The coalition government between the president, Mwai Kibaki, and the prime minister, Raila Odinga, will remain intact until the next election, in 2012.
• Mr Kibaki cannot stand for a third term and there will be fierce competition to replace him. Mr Odinga is likely to stand for the Orange Democratic Movement (ODM) and would appear to have a fair chance of victory.
• The government will remain committed to pro-market reforms, including deregulation, privatisation and trade liberalisation, but some will be delayed because of the packed legislative agenda.
• Real GDP is expected to continue to grow, from 5% in 2010 to 5.4% in 2011, as domestic conditions improve. Growth will peak at 5.9% in 2012 before subsiding in 2013-15 owing to ongoing structural constraints.
• Inflation is expected to edge up to 5.8% in 2011, from 4% in 2010, as demand growth quickens. Inflation will remain in the 5.5-6% range in 2012-15.
• The current-account deficit will shrink from 5.9% of GDP in 2010 to 5.3% of GDP in 2011, owing mainly to a rise in GDP. The gap will narrow further in 2012-15 owing to faster growth in export earnings and services inflows

Monthly review

• Kenya has now put in place some key constitutional organs, after delays, but a fresh interparty dispute about judicial reform, which has become increasingly rancorous, is again threatening progress towards a new dispensation.
• The IMF has approved a three-year, US$509m extended credit facility for Kenya, the country's largest-ever IMF loan, to help to support the balance of payments and the budget, and to facilitate fiscal reforms.
• A revenue collection shortfall in the first half of the fiscal year is pushing government borrowing higher, mainly from domestic markets. Public debt now totals about 52% of GDP and will rise further, before declining.
• Higher credit demand from the government plus higher inflation (which jumped to 5.4% year on year in January) is pushing interest rates upwards.
• The authorities have cut the central bank rate to 5.75% to ease the pressure, but this poses inflation risks.
• Real GDP growth jumped to 6.1% year on year in the third quarter of 2010, driven by good rains (which boosted agriculture, agro-processing and hydro-electricity). The banking sector also continued to grow at a brisk pace.
• The current-account deficit widened in the third quarter of 2010 as imports continued growing more quickly than exports. For the year, the shortfall is now estimated to have reached 5.9% of GDP, up from 5.7% of GDP in 2009.

Kenya's political environment will be dominated by the challenge of implementing the new constitution and the prospect of fresh elections in 2012. Kenyans approved a new constitution by a two-to-one margin last August in a free and fair ballot that was not marred by violence, offering the prospect of more consensual and accountable politics in the future. The next election may therefore prove to be less divisive (than the bitterly disputed ballot in 2007) and could usher in a period of relative stability, but downside risks persist. The co-operation shown by both main parties-the Party of National Unity (PNU) of the president, Mwai Kibaki, and the Orange Democratic Movement (ODM) of the prime minister, Raila Odinga-in supporting the new constitution (despite dissenting voices on both sides) lies in stark contrast to the partisan in-fighting that has marked the grand coalition's tenure to date, but inter-party relations will remain tense. Kenya will retain a presidential system under the new constitution, but with new "checks and balances" and a clearer separation of powers. Significant changes include the devolution of power to the county level; the establishment of an upper house of parliament (the Senate) to oversee county-level affairs; the introduction of a bill of rights and a supreme court; and the abolition of the post of prime minister. The constitution also calls for a new anti-corruption agency and an independent land commission to tackle the thorny issue of land reform.

However, the referendum and the promulgation of the new constitution are not the final steps in the search for a new dispensation but simply a starting point, and there will be little change in the short term. The bulk of the provisions in the constitution, including the formation of a new-style legislature and executive, will not come into force until the next government is formed after the 2012 election. Some provisions will come in earlier and some later (the constitution lays out a timetable spanning one to five years) but in all cases enabling legislation will first need to be drafted and approved, which raises the danger of further in-fighting and delay. Moreover, parliamentary capacity will be stretched to the limit by the need to pass almost 50 pieces of constitutional legislation, as well as other pending bills. The PNU and the ODM will need to co-operate to meet the deadlines-but a fresh row in 2011 about judicial reform highlights the challenges. If legislators fail to keep pace (or prove deliberately obstructive), the new constitution allows for an early dissolution of parliament pending fresh elections. A new parliament would then be tasked with passing the necessary laws. The new constitution is not perfect, however, and there are legitimate worries about the cost of expanding the size of parliament (from 222 seats to 350) and paying for the Senate and the new counties.

The main threat to sociopolitical stability in the medium term is the return of civil unrest on the scale witnessed after the disputed election in December 2007. The formation of a grand coalition government stemmed the crisis, but future stability will require the settlement of long-term grievances over land and other rights, plus an end to the culture of impunity. In a major step towards dealing with alleged perpetrators of post-election violence, the chief prosecutor of the International Criminal Court (ICC), Luis Moreno-Ocampo, in December revealed the names of six prominent Kenyans alleged to be key instigators, including two serving cabinet ministers and the head of the civil service. The prosecutor recommends that they be summoned to give evidence in The Hague rather than issued with arrest warrants, but the decision rests with the ICC pre-trial chamber, which will rule in early 2011. If a trial goes ahead, it will not happen until 2012, an election year, which could stoke fresh tensions and protests, but it would also serve as a timely warning to Kenya's leadership. Kenya promises to co-operate with the ICC but seeks a delay, while some in the political establishment will continue to resist. Positive steps are being taken but the medium-term risks remain significant.

The focus will increasingly switch to the next election (in 2012) as politicians jostle for position. Mr Kibaki will be obliged to stand down after serving two five-year terms, sparking increasingly bitter competition between those seeking to take his mantle as PNU leader. Possible front-runners are the finance minister, Uhuru Kenyatta; the security minister, George Saitoti; and the vice-president, Kalonzo Musyoka-although Mr Kenyatta's prospects could be scuppered after being named by the ICC as an alleged instigator of post-election violence. The PNU, which was created as a vehicle for Mr Kibaki, will not survive in its present form and will be remoulded into a new alliance. Mr Odinga faces similar divisions within the broad-based ODM and will struggle to keep the party's factions together. A group led by William Ruto (another ICC suspect), who led the campaign against the new constitution, seems set to break away. Mr Odinga, health permitting, is likely to be the ODM's presidential candidate and has a fair chance of victory, helped by his strong support for the new constitution. However, it is too soon to pick an election winner, and further realignments in the political spectrum will take place before the ballot. The formation of a new election commission and other reforms will reduce the danger of election-related instability, but the closer the contest the higher the risk. The new president will face a considerably altered landscape because of the structural reforms envisaged by the new constitution.

Foreign policy over the forecast period will continue to be driven by economic interests, including the maintenance of close relations with key donors and the advance of regional integration, especially within the East African Community (EAC). The country will retain close ties with the US (including military co-operation) and with major donors, but relations will suffer if the government fails to implement significant reforms and tackle deep-rooted corruption. Kenya will pursue closer links with key developing countries such as China, India and South Africa. The crisis in neighbouring, lawless Somalia, which remains embroiled in a civil war, will continue to be the main source of security- and terrorism-related risk.

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.

The government will maintain an expansionary fiscal policy in 2010-12, to boost economic growth, but will embrace gradual consolidation in 2013-15 to help to keep debts in check. Kenya's budget for fiscal year 2010/11 (July-June) proposes another large deficit-equivalent to 6.8% of GDP-as the government persists with fiscal stimulus, geared mainly towards capital spending, to encourage growth. Domestic borrowing will remain the main source of financing in 2010/11 (and throughout the forecast period), and the government will seek additional concessional lending from donors. The award in January 2011 of a new IMF credit package will help to contain budget pressures in the second half of the fiscal year. The Economist Intelligence Unit expects the government to retain a fairly loose stance in 2011/12, to support growth, but to start to curtail the stimulus, trimming the budget deficit to 6.5% of GDP. Consolidation will be swifter thereafter, helped by stronger revenue growth, which will reduce the budget deficit to less than 5% of GDP by the end of the forecast period. The public debt burden will rise higher in 2011-12 before gradually declining.

The Central Bank of Kenya continued with its policy of monetary loosening in January 2011 by cutting the central bank rate (CBR) by 25 basis points to 5.75%-the seventh cut in 24 months-in a bid to promote economic activity and reduce borrowing costs. However, whereas the cuts in 2010 took place in an environment of falling inflation-helped by the introduction of a new, re-weighted consumer price index in February 2010-inflation is now rising again, which means that the next CBR movement is likely to be upwards. Apart from the CBR, other key interest rates are moving higher in response to strong credit demand (especially from the government) and higher inflation. The 91-day Treasury-bill rate (the main benchmark) climbed to 2.5% in January, a seven-month high, while other bill and bond rates are following a similar trend. The downward drift in commercial banks' lending rates (by 40 basis points to 14.4% in 2010) has also stalled. We still expect lending rates to subside gently during the forecast period (to 11% by 2015) as monetary policy becomes more sophisticated and banks trim their costs, although rates will rise if the government fails to keep domestic borrowing under control or if higher inflation becomes entrenched.

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The Kenyan economy, after growing by an estimated 5% in 2010, will maintain a brisk rate of expansion in 2011, with real GDP growth quickening to 5.4%-barring exogenous and political shocks. Growth in 2011 will be supported by rising household and business confidence, the spread of banking, especially telebanking, to the unbanked, investment in infrastructure, increased regional trade and regulatory reforms. However, infrastructure bottlenecks, skills shortages, corruption and political uncertainty will persist-while the return of drought in the first quarter poses a threat to farm and hydroelectric output. If the drought persists into the second quarter, the main rainy season, the impact will be more severe and growth will be lower than expected. We expect growth to accelerate to 5.9% in 2012 as the global recovery gains traction (led by strong commodity demand in Asia) and as Kenya's middle class expands, although this will exacerbate domestic structural deficiencies (especially in transport and power). Moreover, key reforms could fall victim to election-related in-fighting, while corruption and weak governance will continue to inhibit private investment. Growth is likely to edge down to within the 5-5.3% range in 2013-15, as there is little prospect of Kenya eliminating infrastructural constraints or dependence on rain-fed agriculture during the forecast period, although the rate of expansion will remain relatively buoyant, barring shocks.

On the supply side, agriculture will remain at the centre of the economy, although its relative importance will continue to fall over time. Industry will continue to benefit from higher regional and global demand, but high costs, associated with structural constraints, will act as a brake, while supplies of agro-inputs and electricity will remain weather dependent. The services sector accounts for 63% of GDP and will continue to be the main engine of economic growth, driven by telecommunications, banking, retail and tourism.

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Inflation-as measured by the revamped consumer price index (CPI)-surged to 4.5% year on year in December and 5.4% in January 2011 (from a recent low of 3.2% in October) owing to rising food and fuel prices. Inflation was subdued throughout most of 2010 as better rainfall kept food and electricity prices in check and because of deep cuts in telecoms tariffs, but these dampening factors will fade. The new CPI, introduced in February 2010, gives a more accurate measure of inflation by increasing the number of items in the price basket and using new weightings based on the latest household spending data-while the cut in the weighting for food, from 50% to 36%, will tend to reduce price volatility in future. However, food prices climbed by 8.6% in January, driven by global trends and dry weather locally, while transport costs rose by 8.4% in line with fuel prices, signalling higher inflation ahead. After averaging 4% in 2010, inflation will climb to 5.8% in 2011 as demand growth quickens and food and fuel prices rise. We expect inflation to move within a 5.5-6% range in 2012-15, spurred by faster GDP growth, higher electricity prices and wage increases, although the revision of the CPI, prudent monetary policies, efficiency gains and more stable global commodity prices will help to keep inflation within tolerable bounds. The weather-and, hence, farm production-will remain a key variable.

The Kenya shilling dipped a little to KSh81:US$1 in January 2011, from KSh80.7:US$1 in December, to be 7% weaker than a year earlier. A second consecutive month of decline (after a few months of relative stability) reflects worries about euro-zone debts, a worsening drought (which may dent tea exports) and rising inflation. The shilling will nevertheless be supported by positive sentiment towards emerging markets and continued backing from donors, including the recent release of fresh IMF funds to bolster foreign-exchange reserves. The shilling, after averaging KSh79.17:U$1 in 2010, will continue on a path of gradual depreciation, sliding to KSh81.8:US$1 in 2011 and KSh83.5:US$1 in 2012, owing to the current-account deficit and higher inflation than in key trading partners. The currency will find some stability in 2013-15, around the KSh85-86:US$1 mark, helped by a stronger trade performance, although more rapid depreciation is likely if political or economic confidence slips.

Exports and imports rebounded in 2010 as both external and internal demand recovered, leading to a wider trade deficit. This outweighed an increase in the invisible surplus (driven by growth in tourism, regional services and remittances) and pushed the current-account deficit wider, to an estimated 5.9% of GDP, although the gap will narrow again during the forecast period. Trade activity will continue to quicken in 2011 and imports will outpace exports as faster GDP growth sucks in consumer and capital goods, while prices for key export commodities such as tea will decline. The higher trade deficit will offset a further rise in the invisible surplus, but the current-account deficit will shrink to 5.3% of GDP owing to stronger economic growth. Thereafter, we expect the current-account deficit to continue falling steadily, to 4.6% of GDP in 2012 and 3.4% of GDP in 2013-and to remain within the 2-3% of GDP range in 2014-15, owing to stronger invisible inflows, especially from tourism and regional services. Imports will remain on an upward path, but regional integration and strong Asian demand will boost exports and help to contain the trade deficit. The current-account deficit, although declining towards the end of the period, will leave Kenya dependent on external inflows-either debt or investment-to fill the gap.

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Kenya, in January, made some stuttering progress towards implementing its new constitution (approved in a referendum last August) by establishing two key bodies--the Commission on the Implementation of the Constitution (CIC) and the Commission for Revenue Allocation (CRA)-after missing the original deadlines because of in-fighting between the coalition partners (December 2010; The political scene). However, interparty peace did not last long, and a fresh, bitter dispute subsequently erupted between the Party of National Unity (PNU) and the Orange Democratic Movement (ODM) about judicial reform and the appointment of new law officers, which clearly illustrates the difficult challenges that lie ahead on the constitutional journey.

The president, Mwai Kibaki (PNU), in late January, announced that Alnashir Viram would take over as chief justice from Evan Gicheru (who is due to step down on February 27th), and that Githu Muigai would replace the veteran attorney-general, Amos Wako (who must stand down before August 27th, one year after the referendum). In addition, the president named Kioko Kilukumi as director of public prosecutions and William Kirwa as budget controller, both new posts. However, the prime minister, Raila Odinga (ODM), denounced the list, saying that he had not been properly consulted-while legal experts criticised the president for by-passing the recently overhauled Judicial Services Commission. PNU officials rejected Mr Odinga's complaint, pushing tensions higher, and some PNU members of parliament have threatened to call a delegates conference, with a view to pulling out of the coalition. However, this is surely brinkmanship, as the PNU lacks the numbers to outvote the ODM in parliament and would risk losing to the ODM in a fresh election: a recent opinion poll puts Mr Odinga well ahead of his rivals in the presidential race. The speaker, Kenneth Marende, was scheduled to give a ruling on the appointments on February 3rd, but instead called for further discussions within key parliamentary committees in a bid to settle the impasse. It seems likely that the president will have to back down, but the intensity of the row confirms that constitutional implementation will be far from smooth.

The row over the judiciary is intertwined with the controversy surrounding the government's bid to stop or delay the pending cases against six Kenyans recently named by the chief prosecutor of the International Criminal Court (ICC) as being responsible for post-election violence in 2008 (January 2011, The political scene). The ICC pre-trial chamber has yet to rule on whether the cases will proceed, but the government (at least the PNU side) hopes that judicial reform in Kenya will persuade the ICC that any prosecutions can be carried out locally, not in The Hague. Kenya has won African Union backing for its position and is now lobbying the UN Security Council, but the latest, fierce dispute between the coalition partners about judicial reform greatly weakens Kenya's case. Some parliamentarians are simultaneously pressing for Kenya's formal withdrawal from the ICC but this would damage Kenya's reputation and is unlikely to proceed.

In a major boost to government coffers-and signalling confidence in Kenyan policy-the IMF executive board in late January approved a three-year extended credit facility (ECF) worth US$509m, of which US$102m has already been disbursed. The ECF represents the IMF's largest-ever package for Kenya-far exceeding the US$209m awarded in May 2009 at the height of the global recession-and is geared towards bolstering Kenya's external accounts and relieving pressure on the budget, in order to relax constraints on growth. Kenya's foreign-exchange reserves are relatively healthy and rose by 10% to US$4.3bn in the year to November 2010-representing three to four months of import cover-but this provides a relatively thin cushion in case of shocks, especially given the country's persistent current-account deficit, which is likely to climb higher as faster GDP growth sucks in imports. The ECF will in addition support the budget and key fiscal reforms, including the transfer of some budgetary powers to the county level under the new constitution. The ECF also heralds a new phase of fiscal consolidation (after policy was loosened during the global downturn)-via tax reforms and spending controls-in order to keep public debt in check. However, finding the right balance will be tricky, given the costs of implementing the new constitution and the urgent need to invest in infrastructure.

Despite fresh IMF support, government finances remain under strain after the Kenya Revenue Authority (KRA) reported smaller than targeted revenue collection for the first half of the fiscal year (starting July 1st), while the pressure to spend-including on drought relief and establishing new constitutional organs-continues to rise. As a result, borrowing is climbing, especially from the domestic market, which could put pressure on interest rates and squeeze out the private sector. Revenue collection in July to December 2010 amounted to KSh303bn (US$3.8bn). Faster real GDP growth has boosted the overall tax take but a fierce price war between telecoms operators has dented flows from airtime taxes, making it hard for the KRA to meet its targets.

The government has continued to rack up domestic borrowing via the issue of new bills and bonds. The latest data show that domestic debt reached a new peak of KSh720bn at the end of 2010-22% higher than a year earlier and up by KSh60bn since the start of the fiscal year. The government had planned to borrow KSh105bn from domestic markets in 2010/11, but will now require closer to KSh120bn (4.4% of GDP). Total domestic debt now accounts for about 30% of GDP-and foreign debt for a further 22% of GDP-pushing the overall public debt burden to 52% of GDP. This is tolerable in a global context but the figure is likely to rise further in the near term and is well ahead of the government's medium-term target of 40% of GDP: the ECF aims to cut the burden to 45% of GDP within three years. On the plus side, Kenya lengthened the maturity profile of its domestic debt in 2010, lifting the ratio of bonds to bills from 75% to 80%. To help to meet the government's ravenous debt appetite, the Central Bank of Kenya (CBK) announced a new auction schedule in January 2011, increasing the frequency of 91-day Treasury-bill auctions to weekly (from fortnightly) and 364-day T-bills to monthly (from two-monthly). The Treasury has also extended tax concessions for bond issues geared towards infrastructure projects.

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The combination of rising demand for debt and the uptick in inflation-which jumped to 5.4% year on year in January 2011, the highest since the CPI was revamped a year ago, owing to food and fuel pressures-is putting upward pressure on key interest rates. The benchmark 91-day T-bill rate edged up in January for the sixth consecutive month to about 2.5%, while the 364-day T-bill rate rose to 3.7%. Bond rates have shown a similar trend, with the 15-year rate rising by 100 basis points to 10.9% in December, and the five-year rate rising by 90 basis points to 7.6% in January. The slow retreat in lending rates-which fell from 15% in early 2010 to 13.9% in October-has now stalled and may go into reverse, threatening higher debt costs for businesses and households. The latest data show that private-sector credit extension continues to grow fairly briskly, rising by 21.5% year on year in October-but this is dwarfed by growth in credit extended to the government, which leapt by 45% during the same period. The CBK in January reacted to rising prices and interest rates by cutting the central bank rate (CBR) by 25 basis points to 5.75%, the lowest since the CBR was introduced in 2006, in a bid to reverse rate trends and cut borrowing costs. The change is a small one and may not have much impact (as the CBR is not the primary benchmark) but was nevertheless surprising as looser money is very risky at present because of the inflationary threat.

Government finances are fairly unhealthy at present, but the finance minister, Uhuru Kenyatta, plans to start unwinding the fiscal stimulus in 2011/12, according to a recent budget outlook paper, which concurs with IMF thinking. The minister hopes that a combination of faster GDP growth, a broader tax base and stricter spending controls will bring the deficit down from a targeted 6.8% of GDP in 2010/11 (KSh188bn) to 5.3% of GDP in 2011/12 (KSh164bn). To fill the gap, the government will seek net external financing of 1.9% of GDP and net domestic financing of 3.4% of GDP (KSh105bn). Spending is set to retreat from 32.9% of GDP in the current fiscal year to 31.8% of GDP in the next-but the minister may be disappointed, especially given extra costs linked to the new constitution and the perennial difficulty in curbing departmental waste. The Economist Intelligence Unit continues to expect a budget deficit of 7% of GDP in 2010/11-followed by a small narrowing to 6.5% of GDP in 2011/12.

The latest data from the Kenya National Bureau of Statistics (KNBS) show that real GDP rose by 6.1% year on year in the third quarter of 2010, the fastest rate since the fourth quarter of 2007, before post-election violence, drought and the global downturn derailed the economy. Growth in the first quarter (4.7%) and second quarter (5.3%) was revised down a little, but growth in the first three quarters was 5.4% higher than a year earlier. This impressive performance stems from favourable rainfall-which boosted agriculture (the largest sector; 22% of GDP), agro-industry and hydroelectric power generation-a fiscal stimulus and the global and regional rebound.

The combination of better agricultural supplies, abundant and cheaper power, and stronger export demand gave a strong boost to manufacturing, which grew by 7.8% in the third quarter (and in the first three quarters). Construction is also booming, spurred by public projects. As a result, the wider industrial sector grew by a swift 11.7% in the third quarter (and by 9.6% in the first three quarters). Performance in the service sectors was mixed. Transport and communications was sluggish (3.2% in the first three quarters) because of transport bottlenecks, while wholesale and retail (4.2% in January to September) was slack, suggesting that households are lagging the wider recovery, pending new job creation. Financial intermediation remains the star performer, surging by 20.3% in the third quarter (and by 15.8% in the first three quarters), underpinned by growth in demand for-and supply of-banking services. Separate data show that banking sector pre-tax profits jumped by 50% in the first ten months of 2010 to KSh62.6bn (US$772m).

However, third quarter growth of 6.1% could be a high point in the recovery. Growth in the fourth quarter is likely to be lower because of much drier weather, heavy snow in Europe (which disrupted aviation, affecting horticulture exports and tourism) and the higher base level of a year earlier. Assuming growth of 4% in the fourth quarter, full year growth will come in at 5%-slightly higher than our earlier prediction. Growth in the first quarter of 2011 will be affected by a worsening drought, which is cutting tea and hydroelectric output. The damage will be more severe if the drought persists into the second quarter, the main rainy season.

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The latest data show that Kenya's current-account deficit grew wider in the third quarter of 2010 to US$582m-from US$547m in the second quarter and US$485m a year ago-as quicker GDP growth sucked in imports faster than the revival in exports. Comparing the first three quarters of 2010 with the same period in 2009, exports rose by 14%, driven by tea (up by 41%) and manufactures (up by 18%), while imports (cif) jumped by 18%, spurred by manufactures (up by 32%), oil (up by 29%), chemicals (up by 21%) and equipment (up by 16%). The net result was to push the trade gap wider, by 21% to US$4.9bn, from US$4bn a year earlier. This was partly offset by a rise in the invisible surplus (on services, income and current transfers), which jumped by 24% to US$3.3bn in the first three quarters, buoyed by tourism, and transport and financial services-and by positive income flows-although private current transfers (mainly remittances), the largest single earner, were flat at US$1.4bn. The current-account deficit for the first three quarters of 2010 was therefore 15% higher year on year at US$1.5bn and, on this basis, we now estimate that the full-year shortfall rose to at least US$1.8bn in 2010 (5.9% of GDP) from US$1.6bn in 2009 (5.7% of GDP). The gap remains comfortably covered by capital and financial inflows, but these are dominated by short-term flows, which can be volatile. The IMF's recent funding package (worth US$509m over three years) will help to reduce Kenya's external vulnerability.

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Please see graphic below

Please see graphic below

Please see graphic below

Land area

569,259 sq km

Population

38.6m (2010 national census)

Main towns

Population in '000, 2010 census

Nairobi (capital): 3,100

Nakuru: 1,603

Mombasa: 939

Kisumu: 968

Climate

Tropical

Weather in Nairobi (altitude 1,820 metres)

Hottest month, February, 13-28°C; coldest month, July, 11-23°C; driest month, August, 24 mm average rainfall; wettest month, April, 266 mm average rainfall

Languages

English, Kiswahili and more than 40 local ethnic languages

Religion

Christian (80%), Muslim (10%), other (10%)

Measures

Metric system

Currency

Kenya shilling (KSh) = 100 cents

Fiscal year

July 1st-June 30th

Time

3 hours ahead of GMT

Public holidays

January 1st; Good Friday; Easter Monday; May 1st; June 1st; Eid ul Fitr; Christmas holiday, December 25th-26th

Official name

Republic of Kenya

Form of state

Unitary republic

Legal system

Based on English common law and the 1963 constitution; new draft constitutions were published in 2002 and 2005 (the latter was rejected in a referendum)

National legislature

Unicameral National Assembly of 210 elected members plus 12 nominated members, the attorney-general and the speaker; a multiparty system was introduced in December 1991

National elections

December 2007; next presidential and legislative elections are to be held in December 2012

Head of state

President, directly elected by simple majority and at least 25% of the vote in five of Kenya's eight provinces

National government

The president and his cabinet, comprising a grand coalition between the Party of National Unity (PNU) and the Orange Democratic Movement (ODM), and allied parties

Political parties in parliament

Orange Democratic Movement (ODM), Party of National Unity (PNU), ODM-Kenya (ODM-K), Kenya African National Union (KANU), Safina, National Rainbow Coalition-Kenya (NARC-Kenya), National Rainbow Coalition (NARC), Democratic Party, Forum for the Restoration of Democracy-Kenya (Ford-Kenya), New Ford-Kenya, Ford-People, Ford-Asili, Sisi Kwa Sisi, Mazingira

President & commander-in-chief: Emilio Mwai Kibaki (PNU)

Vice-president & home affairs: Kalonzo Musyoka (ODM-K)

Prime minister: Raila Odinga (ODM)

Deputy prime minister & finance: Uhuru Kenyatta (PNU)

Deputy prime minister & local government: Musalia Mudavadi (ODM)

Key ministers

Agriculture: Sally Kosgei (ODM)

Co-operative development: Joseph Nyaga (ODM)

Defence: Yusuf Mohamed Haji (PNU)

Education: Sam Ongeri (PNU)

Energy: Kiraitu Murungi (PNU)

Environment & mineral resources: John Michuki (PNU)

Foreign affairs: George Saitoti (PNU); acting

Higher education, science & technology: Hellen Sambili (ODM); acting

Information & communication: Samuel Lesuron Poghisio (PNU)

Internal security: George Saitoti (PNU)

Justice & constitutional affairs: Mutula Kilonzo (PNU)

Labour: John Munyes (PNU)

Land: James Orengo (ODM)

Medical services: Anyang Nyong'o (ODM)

Planning, national development & Vision 2030: Wycliffe Ambetsa Oparanya (ODM)

Roads: Franklin Bett (ODM)

Tourism: Najib Balala (ODM)

Trade: Chirau Ali Mwakwere (PNU)

Transport: Amos Kimunya (PNU)

Water & irrigation: Charity Ngilu (ODM)

Central Bank governor

Njuguna Ndung'u