Bandiera, LucaKumar, PraveenPinto, Brian2012-05-312012-05-312008-08https://hdl.handle.net/10986/6813Kenya has long had a reputation of being politically risky, manifested in corruption, uncertainty about policies, and the importance of political connections in doing business. Kenya began its economic liberalization in 1993. Reform picked up speed after a tightening of aid by donors on governance grounds and an attempt to re-establish credibility following the costly Goldenberg scandal uncovered in 1992. But tangible results in the shape of favorable government debt dynamics and a pick up in growth took a decade to materialize. The paper argues that the peaceful presidential election and transfer of power in December 2002 was central to the economic upswing after 2002. The subsequent decline in political risk was singled out by the private sector as an important development. The paper draws on an analysis of debt dynamics, the evolution of domestic interest rates, and the latest Investment Climate Assessment to present evidence on the criticality of low political risk in facilitating good economic outcomes after 2003. The December 2007 elections have highlighted other aspects of political risk - ethnic and social tensions with roots in inequality. The findings of this paper underline the importance of establishing a foundation for long-term political stability and social cohesion in view of the disruptions following the December 2007 elections. This process is likely to be at least as difficult and lengthy as fundamental economic policy and institutional reform.CC BY 3.0 IGOARREARSBAILOUTSBALANCE OF PAYMENTSBANK ACCOUNTBANKING SYSTEMBANKRUPTCIESBANKSBASIS POINTSBINDING CONSTRAINTBONDBOND INDEXBONDSBORROWING COSTSBORROWING REQUIREMENTSBORROWINGSBUDGET CONSTRAINTBUDGET CONSTRAINTSBUSINESS COMMUNITYBUSINESS PLANNINGBUSINESS PLANSCAPACITY ENHANCEMENTCAPITAL ACCOUNTCAPITAL EXPENDITURECAPITAL FORMATIONCAPITAL MARKETCAPITAL STOCKCASH RESERVECASH RESERVE RATIOCENTRAL BANKCONTINGENT LIABILITIESCONTRIBUTIONCOST OF CAPITALCOUNTRY RISKCREDIBILITYCREDITORSCREDITWORTHINESSCURRENCYCURRENCY COMPOSITIONDEBT ARREARSDEBT CRISESDEBT CRISISDEBT DATADEBT DEFAULTDEBT INSTRUMENTSDEBT MARKETSDEBT PAYMENTSDEBT RATIODEBT RELIEFDEBT SUSTAINABILITYDEFAULT RISKDEMOCRACYDEPOSITSDEPRECIATIONDEVALUATIONDEVELOPING COUNTRIESDISCOUNT RATEDIVIDENDDOMESTIC BORROWINGDOMESTIC DEBTDOMESTIC INTEREST RATESDROUGHTECONOMIC DEVELOPMENTECONOMIC LIBERALIZATIONECONOMIC MANAGEMENTECONOMIC POLICIESECONOMIC REFORMECONOMIC RISKEMERGING MARKETEMERGING MARKET COUNTRIESEMERGING MARKET DEBTEMERGING MARKETSEQUIPMENTEXCHANGE BANKEXCHANGE CONTROLSEXCHANGE RATEEXCHANGE RATESEXPENDITUREEXPORTERSEXTERNAL BORROWINGEXTERNAL DEBTEXTERNAL SHOCKSFINANCIAL ASSETSFINANCIAL CRISESFINANCIAL INSTITUTIONSFINANCIAL MARKETSFISCAL CONSOLIDATIONFISCAL DEFICITFISCAL DEFICITSFISCAL POLICIESFISCAL POLICYFISCAL SURPLUSFISCAL SURPLUSESFIXED CAPITALFOREIGN CURRENCYFOREIGN EXCHANGEFOREIGN EXCHANGE RESERVESFOREIGN FINANCINGFUTURE GROWTHGLOBAL DEVELOPMENT FINANCEGOOD GOVERNANCEGOVERNANCE ISSUESGOVERNMENT ASSETSGOVERNMENT DEBTGOVERNMENT INDEBTEDNESSGOVERNMENT SPENDINGGROWTH RATESIMPORT LICENSESINCOMEINCOME GROWTHINCOME LEVELINCOME TAXINFLATIONINFRASTRUCTURE INVESTMENTINFRASTRUCTURE PROJECTSINITIAL DEBTINSTRUMENTINTEREST PAYMENTINTEREST PAYMENTSINTEREST RATEINTEREST RATES ON TREASURY BILLSINTERNATIONAL BANKINTERNATIONAL CAPITALINTERNATIONAL CAPITAL MARKETSINTERNATIONAL FINANCIAL STATISTICSINVESTINGINVESTMENT CLIMATEINVESTMENT CLIMATE ASSESSMENTINVESTMENT CLIMATE ASSESSMENTSINVESTMENT HORIZONINVESTMENT HORIZONSINVESTMENT PORTFOLIOINVESTMENT PROJECTSINVESTOR CONFIDENCELABOR FORCELEVYLIQUIDITYLOCAL CURRENCYLOW INTEREST RATESLOWER INTEREST RATESMACROECONOMIC INSTABILITYMACROECONOMIC RISKMACROECONOMIC STABILITYMACROECONOMIC STABILIZATIONMACROECONOMIC UNCERTAINTYMACROECONOMIC VARIABLESMACROECONOMIC VOLATILITYMARGINAL TAX RATEMARGINAL TAX RATESMARKET ACCESSMARKET ECONOMYMATURITYMONETARY POLICYNET CAPITALNET WORTHNOMINAL INTEREST RATEOPTIMAL INVESTMENTOVERSEAS BANKPENSIONPENSION FUNDSPOLICY CREDIBILITYPOLITICAL RISKPOLITICAL STABILITYPOLITICAL SYSTEMPOOR INVESTMENTPOVERTY ALLEVIATIONPOWER OUTAGESPRESENT VALUEPRIMARY EDUCATIONPRIVATE CAPITALPRIVATE INVESTMENTPRIVATE INVESTORSPRODUCTIVITYPROFIT MARGINSPUBLIC DEBTPUBLIC EXPENDITUREPUBLIC FINANCESPUBLIC INVESTMENTPUBLIC INVESTMENTSPUBLIC SECTOR DEBTPUBLIC SPENDINGRATE OF RETURNRATES OF RETURNREAL ESTATEREAL EXCHANGE RATEREAL GROWTH RATEREAL INTERESTREAL INTEREST RATEREAL INTEREST RATESRECURRENT EXPENDITUREREFERENDUMREPOREPUTATIONRESERVERESUMERETIREMENTRETIREMENT BENEFITSRETURNRETURNSRISK PREMIUMSALESCANDALSCANDALSSEIGNIORAGESENIORSOLVENCYSOVEREIGN DEBTSUSTAINABLE ECONOMIC GROWTHT-BILLT-BILL RATET-BILL RATEST-BILLSTAXTAX COLLECTIONTAX COLLECTIONSTAX POLICYTAX RATETAX RATESTELECOMMUNICATIONSTOTAL DEBTTRADE LIBERALIZATIONTRANCHETREASURIESTREASURYTREASURY BILLTREASURY BILLSWORLD INTEREST RATEWorld Bank10.1596/1813-9450-4685