The General Election in 2027 presents a classic economic paradox for Kenya. While it acts as a short-term liquidity booster, it simultaneously threatens medium-term fiscal stability.
Though consumer spending spikes due to campaign activities, overall GDP growth often faces downward pressure from political friction.
According to projections by the World Bank, the economy will grow moderately by 4.4 per cent in 2027 – the government’s optimistic target is 5.2 per cent – due to election-related uncertainties.
The wait-and-see attitude of private investors and corporate institutions typically delays capital commitments or expansion plans until after elections.
There are also unique sector dynamics. While retail, transport and hospitality experience demand surges, luxury retail, real estate and FDI slow down dramatically.
The exact total figure of unregulated cash that is likely to be injected into the economy due to election-related expenditure is difficult to track. It is, however, estimated that about Sh300 billion will be poured into the informal economy through voter inducement, campaign paraphernalia and logistics.
The interplay between politics and public finance heavily dictates macroeconomic stability, especially as the country approaches elections.
Political rhetoric acts as a primary driver of market uncertainty, altering investor behaviour and destabilising policy frameworks. This stalls capital formation and private sector growth.
When political factions turn tax and revenue raising measures into a populist battleground, long-term fiscal policy commitments weaken.
For instance, the politicised Gen-Z uprisings of June 2024 significantly narrowed the government’s window for meaningful revenue mobilisation, forcing the Treasury to seek external financing for the budget.
At the same time, aggressive campaign language lowers international investor confidence. This raises the risk premium on debts, and drives commercial borrowing costs up to replace cheap concessional funding.
With ordinary revenue -to-debt ratio approaching 70 per cent, any further borrowing could easily push Kenya to the junk zone, and drastically reduce its credit rating.
The 1992 elections should serve as a warning about the severe macroeconomic damage caused by unconstrained political survival strategies.
To finance the ruling party Kanu’s campaigns, the government printed massive amounts of unbacked currency. That triggered a near-structural economic collapse, driving inflation to a historic high of 46 percent in 1993, and causing decades of economic stagnation.
The 2027 electoral cycle is likely to witness intensified politicking due to the high stakes, occasioned by hostilities between some communities in Mt Kenya and President William Ruto. This election, therefore, poses an immediate threat to the National Treasury’s goal of reducing fiscal gap to 3.3 per cent of GDP.
Fiscal populism is likely to place pressure on the state to increase recurrent expenditure on visible localised projects to court voters. This undermines strict measures needed for structural fiscal consolidation.
The targeted pre-election borrowing of more than Sh775 billion will absorb available banking liquidity. This will potentially drive interest rates even higher, choking off credit to MSMEs that traditionally create more than 80 per cent of the jobs in the country.
The influx of off-book cash directly spikes the velocity of money in the economy, driving up the cost of transport and food. Our economy is still fragile following a decade (2013-22) of neglect of productive sectors like agriculture, ICT, tourism, blue and digital economies, mining and manufacturing.
To prevent macroeconomic slippage, the country must deploy legal, institutional and operational safeguards before the campaigns peak.
First, Parliament should speed up and implement campaign finance laws. Capping candidate expenditure will prevent massive unregulated cash injections from distorting commodity prices and fuelling inflation.
In addition, the Independent Electoral and Boundaries Commission (IEBC) should front-load and cap electoral budgets. The budgets should be spread across three fiscal years. This avoids a massive single-year spending shock.
The electoral agency should make operational lease models for technology. Instead of buying expensive new biometric and transmission hardware every electoral cycle, the agency should lease kits to cut the structural cost of elections.
To rationalise government expenditure, Treasury should strictly enforce its plans to trim non-essential spending, and preserve capital for core development projects.
In addition, the Central Bank of Kenya should vigorously monitor commercial bank transactions to flag and intercept illicit cash before it enters circulation.
As Kenya approaches the elections, it is important for the country to put in place proactive strategies to cushion it against the mistakes of 1992. As the old adage goes “prevention is better than cure”.
Prof Ongore is a Public Finance and Corporate Governance Scholar based at the Technical University of Kenya. [email protected]
