Kenya’s growth to decline if COVID-19 disruptions persist: World Bank

A shop steward arranges dairy products at the Quick Mart Lavington supermarket in Nairobi on January 24, 2019. (Photo by SIMON MAINA / AFP) (Photo credit should read SIMON MAINA/AFP/Getty Images)
FILE PHOTO: A shop steward arranges dairy products at the Quick Mart Lavington supermarket in Nairobi. (Photo credit SIMON MAINA/AFP/Getty Images)

Kenya’s gross domestic product (GDP) is forecast to significantly decline in 2020 due to the negative impact of the COVID-19 pandemic, according to a report by the World Bank.

The report said that it predicted economic growth of 1.5 percent this year with a possible reduction to 1.0 percent, if COVID-19 related disruptions in economic activity persist.

However, the Bank said the country’s medium-term growth was projected to rebound quickly (about 5.6 percent) assuming investor confidence will be restored soon after the COVID-19 pandemic is contained.

The Bank warned that the biggest reservation to that projection was the extent of the impact of COVID-19 while lingering risks included a potential drought and second locust invasion.

The World Bank Kenya Economic Update (KEU) noted that though the Kenyan government had taken steps to strengthen the health system, it had imposed measures to contain the spread of the virus which were crippling the economy.

Kenya’s tourism sector, the country’s largest foreign exchange earner, has been hard hit by the spread of the virus and strict subsequent government measures leading to many businesses closing and job losses.

“We recognize that Kenya must balance between reducing the spread of the virus and cushioning Kenyans particularly informal workers and youth who make up 70 percent of the population from the adverse economic effects posed by COVID-19,” World Bank Country Director for Kenya Felipe Jaramillo said.

President Uhuru Kenyatta recently said that he will only reopen Kenya’s economy once there is a significant reduction in the dangers posed by the coronavirus pandemic. He added that reopening the economy will not be done in a way that worsens the spread of the coronavirus and endangers the lives of millions of people.

The report also urged the government to increase available social assistance programs to provide poor households with food, water, and other basic supplies to cope with the crisis.

“Supporting small businesses and protecting jobs to cope with the negative effects of COVID-19 crisis is particularly critical at this time. This could be done by ensuring that vulnerable households have cash-on-hand, workers continue to receive salaries – even when temporarily laid-off-and that firms have enough cashflow and avoid bankruptcies,” Peter Chacha, World Bank Senior Economist and Lead Author of the report said.

In late March, the government announced a raft of measures to buffer Kenyans against financial hardships occasioned by restrictions imposed due to the COVID-19 pandemic.

Some of the measures included a 100 percent tax relief to Kenyans earning Ksh24,000 ($223) and below and reductions of resident income tax to 25 percent,  Value Added Tax from 16 percent to 14 percent and turnover tax rate from 3% to 1% for all micro, small and medium enterprises.

The government also said it will avail Ksh10 billion ($93 million) to vulnerable groups including the elderly and orphans, among others.

Additionally, it has banned direct food donations and developed a framework to ensure orderly distributions among vulnerable groups to maintain existing health regulations and government orders.

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