Kenya Faces Deep Economic Contraction on Reduced Spending

Kenya's Public Debt Rise to Ksh 7.00 Trillion from Ksh 6.11 Trillion in 2020

Kenya is likely to face a deep economic contraction at an estimate of 5 percent, according to management consultants McKinsey & Company if the COVID-19 pandemic is not contained.

In its study  ‘’Tackling COVID-19 in Africa’ warns that the coronavirus outbreak could make it even bigger, longer and broad-based with household and business spending likely to drop by about 50 per cent.

“The biggest impacts in terms of loss to GDP are reductions in household and business spending (about 50 percent), disruption to supply chain for key inputs in machinery and chemicals (about 30 percent), and tourism (about 20 percent),” the report stated.

The report by McKinsey however further downgrades this, taking into account the locust invasion that hit Kenya earlier on. 

“Kenya is facing a likely economic contraction. Under the contained-outbreak scenario, GDP growth could decline from 5.2 per cent (after accounting for the 2020 locust invasion) to 1.9 per cent,” it says.

This represents a KSh317 billion) reduction in the country’s gross domestic product.

Business Daily says if McKinsey projections come to pass, this will mark the first contraction of Kenya’s economy since 1992 in the aftermath of the Goldenberg scandal.

The Central Bank of Kenya revised its 2020 economic growth forecast to 3.4 per cent from the initial 6.2 per cent projection.

NCBA Bank Kenya Plc (NCBA Bank) in its quarterly economic outlook, titled “The ‘Navigating Covid-19,’ is projecting the country’s Gross Domestic Product (GDP) to decelerate sharply to 2.3 per cent in 2020, should the pandemic persist through the second quarter of 2020.

This it says is a sharp downgrade from its 5.7% projection in January 2020 prior to the outbreak of COVID-19 in the country.

The Institute of Economic Affairs (IEA Kenya), a think-tank that provides a platform for informed discussions in order to influence public policy, in its latest ‘Four Policy Moves Government Must avoid during the COVID-19 Emergency in Kenya’ already states that “Kenya has gone beyond the danger of slower growth but faces the chance of real contraction in the economy. What this means is that resources will be scarce at the very moment when there is critical demand for that.”

According to IEA Kenya, ‘fiscal policy response is required’, but calls for “Good economic policy is invaluable for health policy during and after crisis.”