TOUGH TIMES AHEAD

Coronavirus likely to push up cost of living, Yatani warns

Says we are likely to see a drop in GDP and increase in inflation.

In Summary

• Minister fears the virus will see the shilling shed its value against major currencies, pushing up import cost and eventually the cost of living.

• Hints at a possible fiscal budget review to focus funds on primary sectors of the economy.

Treasury CS Ukur Yatani
Treasury CS Ukur Yatani
Image: VICTOR IMBOTO

You must tighten your belt in anticipation of increased cost of living due to the global coronavirus pandemic.

 

National Treasury CS Ukur Yatani on Thursday said the ministry had formed a multi-agency team to evaluate the impact of the coronavirus on the country’s economy, with plans to roll out a cautionary facility.

In an exclusive interview with the Star, Yatani said the virus is likely to take a toll on Kenya's projected Gross Domestic Growth, currently estimated at six per cent.

On Wednesday, the World Health Organization declared the coronavirus outbreak a global pandemic.

"The general global economic activities have been constrained in one way or another. Imports are shrinking, production cost surging. We are likely to see a drop in GDP and increase in inflation,’’ Yatani said.

He hinted at a possible fiscal budget review to focus funds on primary sectors of the economy.

Yatani also expressed fears that the virus will see the shilling shed its value against major currencies, an effect that will push up import cost and eventually the cost of living.

He was however optimistic that the country's forex reserve, which is currently at 5.8 months of import cover, and a possible return of Sh150 billion standby faculty from the International Monetary Fund (IMF) will help fight economic volatility.

 

On Thursday, the inter-agency technical team led by Treasury was set up after the Exchequer received a preliminary report on the impact of coronavirus from key economic sector players including the Ministry of Tourism, Kenya Private Sector Alliance (KEPSA), Kenya Association of Manufacturers (KAM) and the Central Bank.

Yatani said the team is expected to come up with a detailed report on March 23 to enable the government to decide on the amount to be set aside to cushion businesses.

Yatani revealed that the country has already applied for Sh5 billion from the IMF to support the Ministry of Health in its planning for coronavirus.

Early this week, the international lender set up $50 billion facilities to be drawn on by member states to ease the effects of the virus on the global economy.

Treasury's quick action plan was perhaps necessitated by the shocking preliminary report of the virus on the manufacturing sector.

According to the KAM, 65 per cent of its members are foreseeing shortage in finished products within three months due to the reduced supply of materials from China. The Asian country, which is also the epicentre of the coronavirus outbreak, accounts for 21 per cent of the country's imports.

Bilateral trade between Kenya and China currently stands at Sh382 billion, with imports amounting to Sh371 billion.

According to the KAM report presented to Treasury, 82.69 per cent of manufacturers source their raw materials from China.

Kenya has since suspended flights to the Asian country, shrinking imports and exposing 87 per cent of manufacturers to a shortage of raw materials.

KAM said the most affected sectors are textile (22.5 per cent), food and beverages (17.5 per cent), rubber (15 per cent) and building and construction at 10 per cent.

The crisis has seen the sector come up with mitigating measures, including downsizing. The move is likely to worsen the country's joblessness.

The manufacturers' association said 16.7 per cent of members were considering closing business. Another 2.8 per cent have resorted to shutting down some manufacturing processes, KAM said.

Even so, 63.9 per cent have turned to outsourcing from other markets to stay afloat even as the coronavirus menace spreads.