April 29, 2020 / 7:35 AM / 3 months ago

Kenya's GDP growth to plunge to 1.5% in 2020 due to coronavirus -World Bank

NAIROBI (Reuters) - Kenya’s economic growth is expected to drop to 1.5% this year, and contract 1% in the worst-case scenario under the impact of the coronavirus outbreak that has hit tourism, agricultural exports and remittances, the World Bank said on Wednesday.

Kenyan police officers check vehicles at a roadblock to control traffic coming in to Nairobi, during a partial lockdown as a measure to stem the spread of the coronavirus disease (COVID-19) outbreak in Nairobi, Kenya, April 7, 2020. REUTERS/Baz Ratner

As of Tuesday, Kenya had 374 confirmed cases of the novel coronavirus, with 14 deaths. To stem the disease’s spread, Kenya has suspended commercial flights in and out of the country, imposed a dusk-to-dawn curfew and banned public gatherings. It has also halted movement into and out of Kenya’s five regions most affected by the virus, including the capital Nairobi.

Tourism and horticulture, foreign exchange earners and major employers are some of the sectors most affected by the outbreak-induced slowdown.

“The COVID-19 shock is expected to further reduce growth... with large impacts on services (transport, retail trade, tourism, events, leisure, etc), industry (manufacturing and construction), and agriculture,” the World Bank said in its economic update for Kenya released on Wednesday.

“Measures taken to slow down the rate of infection, including home confinement, travel restrictions, the closure of schools and entertainment spots, the suspension of public gatherings and conferences, and a nightly curfew are expected to affect both production and consumption...”

In January, the World Bank forecast 6% economic growth this year in Kenya, East Africa’s largest economy.

The bank said a more severe global recession would hit Kenya’s export demand, tourism earnings and remittances, while weather-related shocks and a widening fiscal deficit could also present more downward risks.

“This is a type of shock that is applying for everyone. This is a truly exogenous shock,” Peter Chacha, senior economist for World Bank Kenya, said in a conference call on Monday before the report’s release.

The bank said Kenya’s economic growth could rebound to 5.2% in 2021 if its virus containment measures ease by the second half of this year.

On Tuesday, Finance Minister Ukur Yatani said 2020 economic growth would decline to 2.5% but may fall to 1.8%, compared with 5.4% in 2019, because of the coronavirus outbreak. [nL8N2BV52T]

Yatani said Kenya expects to access 75 billion shillings ($701.26 million) from an International Monetary Fund standby facility by mid-May to help the economy withstand the effects of the COVID-19 pandemic.

Kenya has limited financial room to navigate the crisis after years of increased borrowing to fund a range of infrastructure projects including a new, Chinese-built railway, left it with gaping budget deficits.

“The extent of COVID-19’s impact on the economy could add excess fiscal pressures resulting in another round of fiscal slippage, which could derail efforts to contain debt growth and further crowd out private sector-led growth after the crisis,” the bank said in its report.

The Nairobi government has passed a series of tax cuts aimed at cushioning individuals and companies from the impact of the coronavirus.

Reporting by George Obulutsa and Omar Mohammed; Editing by Mark Heinrich

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