Yatani cuts growth forecast to 21-year low on virus woes

Treasury Cabinet Secretary Ukur Yatani. PHOTO | NMG

By CONSTANT MUNDA
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Summary

• Treasury has downgraded Kenya’s growth forecast for this year to 0.6 per cent.
• Cabinet Secretary Ukur Yatani said the impact of the Covid-19 on families, businesses and economic activities has been worse than earlier expected, prompting a further slash on growth forecast set at 2.6 per cent in September.
• Although activity in services sectors such as transportation have started picking on progressive re-opening from July, growth was being dragged by weak performance in tourism and education, said Mr Yatani.

The Treasury has downgraded Kenya’s growth forecast for this year to 0.6 per cent amid the economic fallout from the Covid-19 pandemic — making it the lowest expansion in 21 years.

Cabinet Secretary Ukur Yatani said the impact of the Covid-19 on families, businesses and economic activities has been worse than earlier expected, prompting a further slash on growth forecast set at 2.6 per cent in September.

Mr Yatani said the 5.7 per cent slump in gross domestic product (GDP) — a measure of economic output — in the second quarter was particularly worse than earlier estimates.

Kenya confirmed its first Covid-19 inflection in mid-March and later imposed a partial shutdown.

Key foreign-income earners including tourism and exports, such as tea, flowers, fruits and vegetables bore the brunt of these measures due to lockdowns in key markets and global travel restrictions.

“The pandemic and the resultant containment measures have not only disrupted the normal lives and livelihoods, but also to a greater extent businesses and economic activities,” he told a meeting that kick-started budget preparations for next financial year starting July 2021.

“As a result, our economy contracted by 5.7 per cent in quarter two of 2020 from a growth projection of 4.9 per cent in the first quarter of 2020.”

Although activity in services sectors such as transportation have started picking on progressive re-opening from July, growth was being dragged by weak performance in tourism and education, said Mr Yatani.

Farming activities, which make up more than a third of the GDP, continue to hold up growth supported by “above-average” rainfall.

The Treasury’s growth outlook for 2020 is now closer to projections by global institutions, including the International Monetary Fund (IMF) which in October projected a 1.0 percent growth.

Mr Yatani expects the economy to heal from the Covid-19 punches from next year to grow at 6.4 per cent, a slightly more optimistic outlook than the IMF’s, the World Bank’s and African Development Bank’s forecast of 4.5, 5.2 and 6.1 per cent, respectively.

“The growth outlook will be supported by stable macroeconomic environment, ongoing investments in strategic priorities of the government under the Big Four agenda, turn around in trade as economies recover from Covid-19 Pandemic and expected favourable weather that will support agricultural output,” the minister said.

Fiscal support beyond the Sh58.1 billion economic stimulus package looks unlikely, limited by rising debt and repayment costs with Kenya yet to decide on taking up a global debt relief offer by world’s 20 major economies or G20