Economic revival strategy in Kenya concluding the crisis in the country
Richard Montana | June 6, 2022
The global covid pandemic, which hit the world unexpectedly, had the greatest impact on our everyday lives from many different directions. The ways of our lives were dramatically changed since we were not able to go anywhere or even leave our homes during the lockdown, which most importantly affected the global economy. Even the countries with top running economies were not able to stop the covid impact on their economies, and most importantly, SMEs were the ones that were affected the most.
It will not be a surprise if we say that African countries were also undergoing major challenges during the covid outbreak, in this case, the article will focus on Kenya’s economy and it is quite interesting to analyze the pre-pandemic and during-the-pandemic period, to finally evaluate the new economic revival strategy.
Kenya’s economic outlook
The independence of Kenya was achieved in 1963 after the massive decolonization of the African continent by European colonizers. Now the government was responsible for conducting the policies, and most importantly making the economic policy work. The enterprises were both state-owned and private. However, most of the businesses were in the hands of the private sector, mostly by the foreign investors, where a portion of China, Japan, or the EU is major, however, the government still has the regulatory power.
The economic policy is oriented to achieve a stunning level of economic growth and stability, as well as create jobs, make places for foreign investors, and maximize agricultural export even more. The result has been utterly promising in terms of rising wages, employment, and creating an advanced health system, transportation and infrastructure as well as funding the educational sector. However, the challenges still exist, for example, the industrialization process has been hampered by the limited power of domestic purchasing, government funds are being slashed, etc. the economic diversification was considered to be the main key to fostering economic growth, however, the covid impact made the country few steps behind.
Kenya’s GDP is contracting – world bank report
The latest analysis of the economic condition in Kenya by the World Bank shows that the economy is contracting by between 1% and 1.5$ as a result of the ongoing COVID-19 pandemic since it is confining the trading activities between two parties.
The financial activities were the only secured activities during the pandemic period since the activities were all digitized, thus the income from the financial industries such as foreign exchange market or stocks was not reduced, vice versa, it was even increased. The reason for that was the massive need for generating financial conditions and finding alternative sources, while a lot of businesses were closed. The massive increase of financial activities was visible from many different sources, such as increased demand for the forex brokers in Kenya, increased number of new brokerage companies, as well as the capital flow, however, this did not appear to be enough for the tough economic strike.
The impact on the economy appeared to be even harsher than it was before anticipated, which is a result of the closure of many businesses as well as the education institutions that affected the national accounts. The fiscal deficit was widened due to the decline of tax revenue and tax relief, due to the need for Covid-related spendings, thus the vulnerability of debts has risen. The fiscal deficit widened to 8.2% of GDP, while the pre-covid thoughts were by 6%.
In order to create a friendly environment for an inclusive economic recovery, the report makes several suggestions for protecting incomes and strengthening the health system. However, the economic outlook still remains uncertain, however, the economic rebound is anticipated in 2021, to lift the GDP by 6.9 %, while also considering the vaccination speed and covid-19 countermeasures.
Debt relief and economic revival strategy
In order to bolster dollar reserves in the country and free up cash to help the economy, the government is planning to add on the debt repayment relief from developed countries. The Treasury won accords with the Paris Club of Nations and other creditors, including China, to postpone debt repayment for the six months leading up to June 2021.
Treasury secretary Ukur Yatani recommended in late March that the debt moratorium for African nations will be extended for another year, until June 2022, noting a slower recovery from Covid-19 strikes than expected. The latest budgetary report has saved Sh78.17 billion by signing a debt repayment moratorium with various wealthy nations for the following fiscal year, which is ending in June. Aside from financial support, the savings have played an important role to increase Kenya’s foreign exchange reserves which as of may was standing at $7.546 billion, easing pressure on the shilling versus key international currencies. Dr. Njoroge anticipates the reserves to be increased even more, by $1,16 billion in concessional loans inflows from the IMF and World Bank.
The World Bank is likely to disperse around $750 million under the Official Development Assistance, while on the other hand, the IMF is likely to complete the second evaluation for the release of $410 million under the authorized program. In conclusion, the anticipation is to narrow the current account deficit to around 5.2% of GDP in 2021, as well as a rise in reserves from the aforementioned flows.
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