Economy tipped to rebound 5.2pc

Kenya’s economy will have a strong rebound in 2021, growing by about 5.2 percent, the World Bank projects in a new Economic Update.

The multilateral lender pegs the recovery on expected rise in private sector investment and improved credit access in the post-crisis period.

Favourable weather conditions are also expected to boost agricultural performance, improving food processing activity, increasing exports and strengthening household incomes, the institution said.

“We expect a strong pickup in 2021 of about 5.2 percent and here the main assumption is that investor confidence will be restored soon enough after containment of Covid-19,” said World Bank’s senior economist Peter Chacha in a virtual briefing.

He added that the quick recovery will be dependent on the measures and policies the government adopts to contain the pandemic.

Covid-19 global pandemic containment measures have had a debilitating impact on the Kenyan economy with the aftershocks expected to reduce growth this year.

The measures, including dusk-to-dawn curfew, travel restrictions and closure of entertainment spots, are expected to affect both production and consumption across the economy.

A huge impact has already been reported in service sectors such as transport, retail trade, tourism, events, leisure, manufacturing and construction.

Tuesday, Treasury Secretary Ukur Yatani said the economy will grow at a much slower pace of between 1.8 percent and 2.5 percent this year, from an earlier six percent forecast. Mr Chacha had a more conservative outlook, projecting a baseline growth rate of 1.5 percent this year.

“Because of high uncertainty, we acknowledge the fact that the pandemic may not be contained until the second half of 2020. And this may link to more prolonged disruption of activity. And so the impact on economic activities could fall further to a recession of about 1 per cent,” he added.

According to the World Bank, well targeted policies in response to Covid-19 may help reduce the falling demand and massive layoffs, hence support economy’s resilience.

“Ensuring that vulnerable households have cash-on-hand, workers continue to receive salaries — even when temporarily laid-off-and ensuring that firms have enough cash flow (to pay workers and suppliers) and avoid bankruptcies, as well as supporting the financial system to avoid a credit crunch, are all important,” it stated.

Fiscal deficit is expected to expand to eight percent from 6.3 percent owing to tax breaks the government has taken to cushion Kenyans from adverse effects of the crisis with this gap expected to be closed by additional net domestic financing.

The Word Bank also projects the remittances to come under pressure with the bulk coming from the UK (34 percent) and US (30 percent).

Kenya recorded remittances of Sh304.4 billion ($2.9 billion) in 2019 representing 2.9 percent of GDP and having doubled since 2014.