ECONOMIC UPDATE

Kenya's economy posts snail's pace growth on corona effects

The cost of living in the country has also continued to ease in the country compared to the same period last year

In Summary
  • According to the Kenya Economic Update covering 12 months between March 2020 and March 2021, the country's economic growth has shrunk to 0.4 per cent compared to 5.4 per cent in a similar period last year.
  • Kenya's economy is expected to expand at the fastest rate compared to her peers in Africa, IMF has noted.

Kenya's current path in handling the Covid-19 pandemic in 2021 has shown positive effects in the economy, this compared to the same period in 2020.

According to the Kenya Economic Update by Worldbank covering 12 months between March 2020 and March 2021, the country's economic growth has shrunk to 0.4 per cent compared to 5.4 per cent in a similar period last year.

The cost of living in the country has also continued to ease in the country compared to the same period last year when Covid-19 hit the country, despite high fuel costs.

In April 2021, the cost of living eased to 5.76 per cent in April from 5.9 per cent in March, this despite partial lockdowns put iin place to curb the spread of Covid-19 following a surge of infections at the time.

For April 2020, a month after the first Covid-19 case was reported in the country inflation was at 6.01 per cent.

This difference in performance despite the economy still grappling with the pandemic was predicted by the IMF in its latest outlook dubbed,Managing Divergent Recoveries.

In the report, IMF noted that developing economies would grow faster this year than previously forecast but many outside Asia will lag developed peers, potentially scuppering progress on narrowing the gap in living standards.

“Across countries, the recovery has been shaped by the path of the pandemic, curbs to mobility imposed to contain its progress, and policy actions,” said IMF.

This means that measures such as locking down the country or tax cuts have a great impact on an economy.

In April 2020 when the pandemic was just a month old in Kenya, there was a lockdown in place a 7pm curfew and a number of tax cuts to cushion Kenyans.

In March 2020, the government announced cut the value-added tax rate to 14 per cent from 16 per cent and corporation tax was reduced to 25 per cent from 30 per cent under plans, and 100 per cent tax relief for Kenyans earning a monthly income of up to Sh24,000.

The reversal of these tax cuts in January 2021 has had a significant impact on the country's revenue collection with the Kenya Revenue Authority surpassing its targets since January this year.

The partial lockdown put in mid-March this year, negatively affected the economy with reduced business activity, but the measures have since been relaxed.

Kenya's economy is expected to expand at the fastest rate compared to her peers in Africa, IMF also noted in the outlook.

According to the Sub Saharan Africa projections, Kenya's growth will be the fastest followed by Burkina Faso which is expected to rebound to 7.5 per cent from negative growth of 8.3 per cent last year. 

Overall, the region’s economy is expected to  expand at 3.4 per cent, weaker than the six per cent for the rest of the world, amid a continued lack of access to vaccines and limited policy space to support the crisis response and recovery. 

IMF first alluded to Kenya's fastest growth projection in a statement justifying the board's decision to grant the country the disputed $2.34 billion facilities. 

It said Kenya’s medium-term outlook is positive, but the pandemic’s socio-economic impact will take time to reverse.