The coronavirus (COVID-19) pandemic has made a significant impact on Kenya’s economy, with the country witnessing its worst economic growth in over a decade. This is as a result of Kenya’s key sectors being affected by the pandemic.
However, if countries around the world can contain the pandemic and the weather remains favourable for increased agricultural output, an immediate rebound should be expected in 2021.
According to the World Bank, 21st edition of the Kenya Economic Update report titled Turbulent Times for Growth in Kenya, Kenya’s GDP could move to 1.5 per cent this year from 5.4 percent recorded in 2019.
Although the report paints a bleak year, an immediate bounce back is expected next year with growth estimated to pick up quickly to 5.2 percent in 2021 and 5.7 percent in 2022 before reaching the growth potential of six percent in 2023.
For Kenya, economic activity is heavily weighed down by a combination of supply and demand, the worst case scenario could see growth shrink to one per cent.
Measures taken to reduce the spread of the virus, including staying at home, travel restrictions, the closure of schools and entertainment spots, the suspension of public gatherings etc.has affected both production and consumption across the economy.
Due to the pandemic, the country has experienced shocks from both the external and domestic fronts. Concerns are also high that COVID-19 could push the country into a recession. The government forecast shows a 2.5 percent GDP baseline with a potential contraction to 1.8 percent.
According to the report, “It is expected that the shock will reduce growth below that of 2008 when the country’s economy grew by 0.2 percent from 6.9 percent in 2007 as a result of the post-election violence, drought and the global financial crisis.”
Based on the report, Kenya’s economic outcome this year depends on how the pandemic plays out both internationally and in the country, along with policy actions and the responses of households and companies.
The report states that COVID-19 has affected all sectors of the economy from disrupting imports of intermediate and capital goods, exerting pressure on agricultural exports, drastically reducing tourism earnings and remittances.
In analyzing the manufacturing sector, the Purchasing Managers Index (PMI) has fallen below the 50-points mark indicating declining orders and growing negative business sentiment. The index has reduced from about 53.3 points in December 2019 to 37.5 points in March.
The government’s plans for fiscal consolidation have also been pushed off track because of the negative effects on revenue collection and increased expenditure pressures.
Before the outbreak, Kenya’s fiscal deficit had expanded to 7.7 percent of GDP in the 2018/2019 financial year from 7.4 percent in 2017/2018 while public debt had increased to 62.4 percent in December 2019.
The government’s target for this financial year was to reduce the deficit by 1.4 percentage points to 6.3 percent of GDP and contain debt. Now, the World Bank expects the deficit to rise to 8 percent of GDP in 2020.
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