Treasury warns 2027 election uncertainty may spook investors, slow credit growth

Treasury warns that political uncertainty ahead of the 2027 General Election could dampen investor confidence. [Courtesy]

Treasury mandarins and President William Ruto's money men are racing to fast-track the administration's final budget ahead of the August 2027 General Election, even as they warn that political uncertainty could spook investors and slow private sector credit growth.

The Draft 2027 Budget Policy Statement, tabled in Parliament, reveals a government preparing for an electoral period it acknowledges will weigh on the economy.

"The FY 2027/28 and Medium-Term Budget is being prepared under a revised budget calendar to facilitate completion of the budget process ahead of the August 2027 General Elections... Timely conclusion of the budget process will facilitate continuity in the delivery of public services and effective implementation of government programmes during the electoral period," the Treasury says.

President Ruto is seeking a second term in what is expected to be a hotly contested presidential poll, with opposition leaders attempting to unite behind a single candidate to unseat him.

The Treasury's projection mirrors a recent Central Bank of Kenya (CBK) survey showing chief executives were jittery, with apprehension over political stability rising from 6 per cent in September 2025 to 12 per cent in July 2026.

In the BPS, Treasury projects private sector credit growth to decelerate to 8.5 per cent in the fiscal year 2027/28, down from 10.6 per cent in June 2026.

The Treasury attributed the slowdown to the electoral calendar, stating: "Uncertainty ahead of the August 2027 General Election could weigh on fiscal performance and investor sentiment."

The document also frames the election year as a time to "secure the gains" of the current administration: "Coming in the final year of the Administration's current term... the 2027 BPS also takes stock of the progress achieved since 2022 and sets out how these gains will be consolidated and carried forward..."

When investors are spooked, the first casualty is the credit channel.

Banks, uncertain about the political and policy environment, become more selective about whom they lend to and at what price.

In Kenya, private sector credit growth stood at just 1.6 per cent of GDP in August 2017, its lowest in over a decade, as election-related uncertainty weakened private sector activity. The World Bank noted that the Kenya Private Sector Alliance estimated the private sector lost about $7 billion, equivalent to roughly 10 per cent of GDP, from the effects of the heightened uncertainty the 2017 elections created.

The pattern repeated in 2022. The Markit Stanbic Bank Kenya Purchasing Managers' Index fell to 44.2 in August 2022, the lowest reading since the lockdown-hit period in April 2021, as the prolonged election season disrupted output and new orders. Business confidence dropped to a record low, with only 10 per cent of respondents giving a positive forecast for output over the next 12 months.

A credit slowdown transmits directly to the labour market. When banks tighten lending, small and medium-sized enterprises, which rely most heavily on bank financing, reduce hiring.

During the 2017 political impasse, the Kenya Association of Manufacturers reported that 47 per cent of factories planned to shed jobs over the next six months. This followed sales that were lower than expected and led to reduced production.

Some 64 per cent of industrial manufacturers forecast zero or negative revenue growth in the next six months.

When firms cannot access credit to finance working capital or expansion, they freeze hiring, delay capital expenditure, and in worse cases, cut staff to preserve cash.

A Kenya Private Sector Alliance survey found that 65 per cent of CEOs are already postponing major capital expenditures planned for late 2026 and 2027.

The political landscape confronting Ruto is fluid.

Opposition leaders have publicly committed to fielding a single candidate, drawing parallels to the 2002 election when a united opposition ended Kanu's four-decade rule.

However, the question of who should carry the flag remains unresolved.

Wiper Patriotic Front leader Kalonzo Musyoka, former Deputy President Rigathi Gachagua, former Interior Cabinet Secretary Fred Matiang'i, and Nairobi Senator Edwin Sifuna are among those positioning themselves.

Ruto's allies, led by Prime Minister Musalia Mudavadi, have said they are strategising for a "resounding and petition-free victory," anchoring the re-election bid on the administration's development record, including housing, healthcare, and fertiliser subsidies.

Kenya is widely viewed as East Africa's business and diplomatic hub, hosting regional headquarters for some of the world's most famous multinationals.

American giants Google, Microsoft, Citibank, Coca-Cola, Uber and Mastercard maintain significant operations in Nairobi, alongside European names such as Vodafone-backed Safaricom, Glovo, Bayer, Unilever, BAT, and Standard Chartered.

Chinese telecoms equipment maker Huawei and Japanese automaker Toyota are also deeply embedded in the local economy.

Representatives of these firms are keenly watching the political environment, and diplomatic missions have stepped up their monitoring of the situation ahead of the 2027 election.

The incoming US ambassador, Henry Wooster, said Washington "will watch closely" and that its interest is stability: "We are not picking sides in the election,” he said.

The wait-and-see approach is not unique to Kenya.

In India, investors cut exposure to bonds ahead of general elections.

In the United Kingdom, Sirius Real Estate's chief executive said the company would not invest "in any meaningful form until June after the May elections."

In Mexico, mergers and acquisitions fell 36 per cent in the first half of 2025 amid elections in both Mexico and the United States.

The common thread is a fear of the unknown. Investors are not necessarily betting against an incumbent; they are unwilling to commit capital when the rules of the game- taxation, regulation, contract enforcement - could shift after the vote.

Kenya's own record illustrates the cost. Growth cooled to 4.7 per cent in the 2017 election year, and to 4.8 per cent in 2022. The 2007/08 post-election violence saw GDP growth collapse to roughly 0.2 per cent in 2008 from 6.9 per cent in 2007.

The Treasury's warning follows months of mounting anxiety in Kenya's boardrooms. A Central Bank of Kenya survey of over 1,000 chief executives released in July 2026 found that executive apprehension regarding political stability had more than doubled over the past year, rising from 6 per cent in September 2025 to 12 per cent in July 2026.

The survey found political uncertainty is most acute in manufacturing, where 11 per cent of respondents cited it as a growth constraint, compared to 8 per cent in services and 0 per cent in agriculture.

Real estate, building, and construction sectors, heavily reliant on government-funded projects, expect activity to moderate "as the election period approaches."

While political uncertainty remains secondary to primary macroeconomic headwinds such as the elevated "cost of doing business" (19 per cent) and "increased taxation" (17 per cent), its doubling as a perceived constraint over the past year highlights a growing caution among firm executives as long-term investment horizons near.

"Predictable, transparent and equitable policies" and "promoting long-term national development plans that provide greater continuity beyond political cycles" remain vital imperatives for sustaining corporate expansion, the survey respondents said.

The emergence of politically aligned "goons", informal militia groups that have historically been deployed to intimidate opponents and disrupt polling, has further stoked fears.

The Independent Policing Oversight Authority has warned that isolated incidents of violence witnessed during recent rallies could escalate into a broader national security challenge as the country moves closer to the 2027 election.

Business stakeholders have sounded the alarm over confrontational politics, warning that rising political tensions, ongoing civil unrest, and intense political competition have severely threatened business operations, property, and economic stability.

For now, the Treasury's warning is an acknowledgement that the election is already shaping economic behaviour. The question investors are asking is not who will win, but whether the policy environment they are committing to today will still exist afterwards.