Kenya’s economic growth which grew negatively for the first time in two decades in the first six months of the financial year due to Covid-19 economic pressures is expected to rebound in the remaining half.
According to 2021 economic prospect by the World Bank released early this month, the growth will be certain if an initial Covid-19 vaccine rollout becomes widespread throughout the year.
According to World Bank, Kenya’s economy will grow at the fastest pace in Sub Saharan Africa (6.9 per cent), but warned that the growth will likely be subdued, unless policymakers move decisively to tame the pandemic and implement investment-enhancing reforms.
The positive growth projection is good news to the country that almost lost hope as the virus surged, infecting close to 100,000 people, claiming over 1500 lives by December 31.
The economy contracted by 0.4 per cent in the first half of 2020, compared with an expansion of 5.4 per cent a year earlier.
This saw the unemployment rate increase sharply, doubling to 10.4 per cent in the second quarter.
About two million workers lost jobs in three months to June when Kenya imposed a coronavirus-induced lockdown that led to layoffs and pay cuts.
Data from the Kenya National Bureau of Statistics (KNBS) shows the number of people in employment fell to 15.87 million between April and the end of June compared to 17.59 million in the previous quarter.
KNBS’Q2 Labour Force Report shows the number of unemployed increased to 4,637,164 between April and June compared to 2,329,176 in the same period last year.
The more than two million out of work shrank the number of people in active employment to only 15,870,357. Last year, 17,790,800 were actively employed in the same quarter. In the January to March period, some 17,586,961 had jobs.
The government’s data on the effects of Covid-19 on the economy, specifically the labour market, mirrors another one by the Federation of Kenya Employers (FKE), which records that most of its members had lined up redundancies.
Job loss was mostly felt in the hospitality sector, with most hotels forced to shut on Covid-19 restrictive measures put in place by both local and international states to limit the spread of the virus.
The Kenyan government for instance suspended all international flights on March 25, while locally, movement in and out of the Nairobi metropolitan area, Mombasa, Kilifi and Kwale counties was stopped.
This led to near-zero activities in the tourism and aviation sectors, with Tourism Research Institute (TRI) data indicating zero arrivals in April, May, June and July.
Schools were shut for nine months, forcing most private schools to shut, rendering many people jobless.
Apart from shrinking jobs, the virus hurt general production in manufacturing, agriculture and logistics.
The virus also negatively affected the performance of the financial markets, disruption of global supply chains, the volatility of the Kenyan currency, reduction in diaspora remittances, and the reversal of prior monetary and fiscal policies.
Although the government rolled out various initiatives to insulate the public from devastating social-economic pressures of the virus, including tax cuts, suspension of loans, reduction of money market transaction fees among others, households are still struggling financially.
The Central Bank of Kenya for instance asked banks to offer a six months moratorium on loans and asked the credit bureau to stop blacklisting defaulters for six months to September and delist those with arrears below Sh1000.
Furthermore, all fees associated with checking balances for mobile digital platforms were lifted. All charges for transactions between mobile money wallets transfers and bank accounts were also waived.
Those measures and dwindling revenues for households had an overriding effect on banks’ earnings, with loan defaults hitting a roof. According to CBK, average NPLs hit 14 per cent.
Reputable global credit rating agencies: Moody’s and Fitch have projected the loan default to hit 15 per cent by the end of the year.
Just like households, the virus hampered the government’s revenues, forcing it to turn to borrow, a move that has since worsened the country’s debt position. According to the National Treasury, Kenya’s total public debt was at Sh7.1 trillion or 69.2 per cent of GDP.
The soaring public debt continues to pile pressure on taxpayers who will now have to bear the repayment obligation.
The government borrowed a record over 500 billion both locally and internationally as part of Covid-19 fund.
Early in the week, the government yielded to international pressure to include parastatal debt worth Sh3.2 trillion to the total public debt, pushing it over Sh10 trillion, way above the Sh9.1 trillion ceiling set by Parliament.
It has since received debt relief from multilateral lenders allied to the Paris Club and requested the same favour from China which accounts for a bulk of loans due this financial year.
Kenya is expected to spend more than half of its domestic revenue to repay loans amid low collection.
Even so, pundits are optimistic that things will shape up as the country waits for Covid-19 vaccination expected to arrive in the country in February.