NAIROBI, June 30, 2020 – Kenya‘s gross domestic product (GDP) is expected to grow 4.5 percent in 2021, suggesting a partial recovery from the COVID-19 (coronavirus) pandemic that stalled growth last year. According to the latest analysis by the World Bank, economic activity will accelerate to over 5 percent in 2022 and 2023.
The outlook for Kenya’s continued recovery, which is mixed across sectors and some are still badly affected by the pandemic, depends on progress in vaccination efforts. The baseline scenario is adequate agricultural harvests and a recovery in industrial activity, supported by increasing demand from the recovering global economy. However, many service activities are facing a longer path to recovery. After the 23rdapprox Edition of the Kenya Economic Update, Rising Above the Waves, private consumption is expected to pick up, helped by a recovery in wages and household incomes and strong remittances. The report notes that consumer confidence and business should be supported by ongoing vaccination efforts and, over time, the return of mobility to pre-pandemic levels. Without inflation shocks, monetary policy easing is likely to continue in the short term. The budget deficit is expected to shrink from 8.7 percent of GDP in FY 2020/21 to 4.2 percent in FY 2023/24 due to the efforts to consolidate the budget.
“The outlook remains unusually uncertain and depends on the course of the pandemic. We anticipate that Kenya’s economy will continue to recover, albeit unevenly and gradually for some sectors, supported by the government’s plan to vaccinate the entire adult population by mid-2022. “ said Keith Hansen, World Bank Country Director for Kenya.
Slower vaccine uptake due to supply problems, logistical barriers to domestic distribution, and reluctance to vaccinate could weaken the recovery. In addition, external factors such as setbacks for the global economy due to a resurgence in infection rates could affect the projected recovery in goods exports, tourism and capital inflows in Kenya. A slower-than-expected vaccination roll-out, household failures, adverse weather conditions and a weaker global economic environment could call the forecast recovery into question. In an unfavorable scenario, the short-term average growth would be 3.7 percent lower. On the flip side, the economic impact of the pandemic could wear off faster than expected, also due to accelerated vaccination, which would lead to a faster recovery in economic activity.
With this in mind, policy makers are challenged to control the pandemic, support economic recovery, and lay the foundation for green, resilient and inclusive development while reducing macro-financial vulnerabilities.
“Policy makers can support Kenya’s economic recovery by responding to the still very troubled pandemic situation while prioritizing short-term vaccination and medium-term fiscal consolidation. said Alex Sienaert, Senior Economist for Kenya. “The proposed budget for FY 2021/22 reflects these priorities and its implementation would help start rebuilding fiscal space.
The special focus section of this economic update provides an overview of the labor market in Kenya as the country moves into a crucial phase of its demographic change. Kenya’s labor force will grow by an average of one million per year over the next decade as the largest youth cohorts enter working age. To earn a potential demographic dividend, building on Kenya’s previous development advances, reinvigorating economic change and gradually shifting the workforce to more productive jobs is imperative. The COVID-19 pandemic has exacerbated this already significant challenge by disrupting economic activity and causing job losses. On the labor supply side, the focus is on investment and reforms to strengthen human capital and social protection so that Kenya’s fast-growing workforce can participate and drive jobs and economic transformation.