The Politics of Central Banking in Kenya: Balancing Political and Developmental Interests

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’s effectiveness over time. The paper finds that Kenya’s political settlement has constrained CBK’s 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’s importance in enabling vital 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 who have not been willing to compromise in this way have undermined the organisation’s independence and autonomy by provoking a backlash. The paper also finds that Kenya’s competitive clientelist political settlement has caused difficulties for CBK in undertaking its price stability mandate. This is particularly the case during election periods, when the organisation faces pressure to adopt a looser stance. Nonetheless, despite these pressures, 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 ‘pocket of effectiveness’. 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’s competitive clientelism. These are: transnational factors; ideas and ideology; and organisational-level factors, including CBK’s leadership and its formal and informal sources of autonomy.