The politics of central banking in Kenya: Balancing political and developmental interests
This paper analyses the performance of the Central Bank of Kenya since the organisation gained formal independence in the early 1990s.
Abstract
This paper analyses the performance of the Central Bank of Kenya (CBK) in delivering on its mandate since the organisation gained formal independence in the early 1990s. It utilises a political settlements approach, tracking how the distribution of power has shaped CBK鈥檚 effectiveness over time. It finds that Kenya鈥檚 political settlement has constrained CBK鈥檚 performance in certain respects, particularly with regards to financial sector supervision, where the organisation must operate within a tight set of political constraints because of the sector鈥檚 importance in enabling patronage networks and generating political financing for elections.This has often incentivised CBK governors to undertake incremental reforms that balance developmental and political interests; governors unwilling to compromise in this way have undermined the organisation鈥檚 independence and autonomy by provoking a backlash.
The paper also finds that Kenya鈥檚 competitive clientelist political settlement has caused difficulties for CBK in undertaking its price stability mandate. This is particularly so during election periods, when the organisation faces pressure to adopt a looser stance. Nonetheless, the paper finds that CBK has, overall, been effective in delivering on its core mandate throughout the period under analysis, to the extent that it can be labelled a long-standing 鈥榩ocket of effectiveness鈥�. This is because three other sets of factors have played a kind of countervailing role, by keeping CBK relatively insulated from the most corrosive aspects of Kenya鈥檚 competitive clientelism. These are: transnational factors; ideas and ideology; and organisational-level factors, including CBK鈥檚 leadership and its formal and informal sources of autonomy.
This work is part of the Effective States and Inclusive Development Research Centre programme
Citation
Tyce, M. (2020)The politics of central banking in Kenya: Balancing political and developmental interests. ESID Working Paper No. 130. Manchester, UK: The University of Manchester
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