• The near-zero growth is as a result of the impact of Covid-19 which has disrupted key sectors of the economy.
• Countries with containment measures on average are assumed to entail a loss of about five per cent of working days.
Kenya's growth is likely to remain flat this year, the latest International Monetary Fund(IMF) projection shows, as the global economy tumbles south in a possible recession worse than the post-2008 financial crisis.
“The Great Lockdown'-World Economic Outlook by IMF projects Kenya's real Gross Domestic Product will grow at a minimal one per cent (1%), being among the most hit low-income countries in Sun-Saharan Africa which has an overall growth of negative 1.6 per cent.
The current account balance is projected at negative 4.6 down from negative 4.5 last year.
2019 projection was 5.6 per cent.
This year's near-zero growth is as a result of the impact of Covid-19 which has disrupted key sectors of the economy, mainly service sector, informal sector and SMEs.
Output in some sectors has also been affected by social distancing, the current 7pm-5am curfew and restricted inter-county movement.
“The disruptions are assumed to be concentrated mostly in the second quarter of 2020,” IMF notes in its preliminary report, which is set to be fully launched next month.
According to the global monetary fund, countries experiencing severe epidemics are assumed to lose about eight per cent of working days in 2020 over the duration of containment efforts and subsequent gradual loosening of restrictions.
Other countries are also assumed to experience disruptions to economic activity related to containment measures and social distancing, which, on average, are assumed to entail a loss of about five per cent of working days.
Kenya is among those that have implemented strict social distancing measures, especially in the public transport sector, as a huge number of the employed working from home.
This is the lowest projection so far after the Central Bank of Kenya(CBK) in March cut its 2020 economic growth forecast from an initial estimate of 6.2 per cent to 3.4 per cent.
The Cytonn 2020 Market Outlook has also revised the growth downwards to a range of 4.3 to 5.2 per cent, “depending on the severity of the outbreak and economic implications.”
This is from an initial projection of between 5.6 - 5.8 per cent.
The one per cent will be the worst in 12 years, having taken a hit in 2008 after the global financial crisis and the post-election violence, which pushed growth from 7.1 per cent in 2007 to 1.7 per cent in 2008.
Related to the uncertainty around Covid-19, an extended risk-off episode in financial markets and tightening of financial conditions could cause deeper and longer-lasting downturns in a number of countries.
“Depending on the duration, global business confidence could be severely affected, leading to weaker investment and growth than projected in the baseline,” IMF says.
In countries with large informal sectors—often emerging market and developing economies—existing support programmes should be expanded and new programs introduced where feasible.
The government is currently implementing a number of tax measures with stimulus packages and reliefs by banks expected to cushion the local economy from collapse.
CBK last month lowered its base lending rate to 7.25 per cent from 8.25 per cent. It also released Sh35.2 billion, with a cut on Cash Reserve Ratio (CRR) to 4.25 per cent from 5.25 per cent.
The funds are now available to commercial banks to support distressed borrowers, according to governor Patrick Njoroge.
The action by CBK is similar to one taken by a number of central banks in recent weeks, which includes monetary stimulus and liquidity facilities to reduce systemic stress.
“These actions have supported confidence and contribute to limiting the amplification of the shock, thus ensuring that the economy is better placed to recover,” IMF said yesterday.
According to the Washington headquartered entity, further development of digital payments systems, which have seen rapid growth in many emerging markets and developing economies, may provide an opportunity to improve the delivery of targeted transfers to the informally employed.
“New digital technologies can be used to process applications for income support and deliver direct transfers to identified individuals or households,” it says.