World Bank pins 4.5 per cent GDP growth on Covid shots, weather, fiscal discipline

The World Bank sees growth for Kenya at 4.5 per cent this year while projecting a -0.3 per cent contraction in 2020 in the latest economic reforms report attached to the recent Kes 81 billion financing to the country.

The global lender has attributed the expected rebound in GDP growth to the roll out of vaccines in the country and the partial return of economic activity to pre-COVID-19 levels.

At the moment, 987,277 persons have so far received their first dose against the COVID-19 disease in the country while 128,744 have received their second shot as of June 14.

The Bretton Woods institution also bases the growth projection on expected normal weather pattern that will be crucial in sustaining agricultural production.

On the domestic front, a final key assumption underpinning the 4.5 per cent GDP upswing is that the government will resume fiscal consolidation in the upcoming 2021/22 fiscal year, mitigating the risk of crowding out and opening more space for private credit extension while supporting investor confidence and growth.

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Kenya’s revenue collection, including non-tax revenue with the exception of grants, fell from 18.3 per cent of GDP in FY2018/19 to 17.1 per cent in FY2019/20, with half of this drop being due to discretionary tax cuts rolled out as part of the government’s crisis response to Covid-19.

The government reversed most of this temporary tax relief in January this year, the main exception being maintaining relief for taxpayers in the lowest personal income of less than Kes 24,000 per month.

Nevertheless, the World Bank warns of rising debt vulnerabilities as it directs government to roll out an aggressive fiscal consolidation mechanism to lessen the country’s debt exposure.

In the months following onset of the pandemic, Kenya’s debt increased to 65.9 per cent of GDP in June 2020, from 62.4 per cent of GDP in June 2019. The country is now facing a high risk of debt distress, notes the World Bank.

With the onset of the crisis in Kenya, the unemployment rate increased sharply, approximately doubling to 10.4 per cent in the second quarter of 2020. About two million Kenyans lost jobs as the pandemic wreaked havoc on the economy last year.

Many wage workers, who managed to keep their jobs had to come to terms with reduced working hours, with average time decreasing to 38 from 50 hours per week.

In the four months to June 2020, almost a third of household-run businesses closed shop and average revenue from household-run businesses decreased by almost 50 per cent, the World Bank says.

The country’s economy has been exposed through trade and travel disruption as well as the dampening effects on domestic activity of the containment curbs and behavioral responses rolled out.

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