World Bank: Kenya Economy to Re-bound in 2021.

Kenyan economy is projected to post the strongest growth among its regional counterparts in 2021 after a slump last year on account of COVID-19 pandemic.

The World Bank in its January 2021 Global Economic Prospects forecasts the economy to rebound to 6.9% this year and 5.7% in 2022 after contracting by 1% last year.

Kenya’s GDP rebound will be the fasted in the East African Community where Rwanda is forecast to expand by 5.7%, Tanzania 5.5%, Uganda 2.8%, Burundi 2% while South Sudan is projected to contract 3.4%.

Last week, the government extended the 10pm-4am nationwide curfew to 12th March 2021 amid concerns of a potential outbreak as a result of a new COVID-19 variant, a move that is expected to continue inhibiting growth at least in the first quarter of the year.

The World Bank cites access to COVID-19 vaccine, debt sustainability, natural disasters and insecurity as key risks in 2021 for Sub-Saharan economies.

“Risks are tilted to the downside. Growth in major trading partners could fall short of expectations. Widescale distribution of a COVID-19 vaccine in the region will likely face many hurdles, including poor transport infrastructure and weak health systems capacity,” the report read.

As of 5th January, Kenya had recorded 97,127 cases out of 1,064,419 tests with fatalities rising to 1,690. Total recoveries now stand at 79,357.

The bank further warns of a potential rise in bad loans held by banks which in Kenya stood at Kshs. 402.3 billion out of gross loans amounting to Kshs. 2.97 trillion as at the end of October 2020 according to data from the Central Bank of Kenya.

“Banks may face sharp increases in non-performing loans as companies struggle to service their debt due to falling revenues. Lasting damage of the pandemic could depress growth over the long term through the chilling effects of high debt on investment, the impact of lockdowns on schooling and human capital development, and weaker health outcomes,” the bank noted.

The bank’s projection comes amid revenue pressures from the government which has since forced the National Treasury to revert to pre-Covid tax breaks on VAT and Income tax initiated in April last year to cushion Kenyans from adverse social and economic effects of the virus.

Treasury Cabinet Secretary Ukur Yatani indicated that as at 31st December 2020, the tax man had forgone revenues amounting to Kshs. 65B as a result of lowering VAT from 16% to 14%, corporate tax from 30% to 25% same as individual income tax.

The taxes were reverted to earlier rates on 1st January 2021.

The government is also receiving backlash from the private sector with the introduction of a minimum tax applied at the rate of rate of 1% on monthly gross turnover regardless of whether companies make profits or not, a move that is expected strain their cashflow amid recovery efforts.

Overall, the global economy is expected to expand 4% in 2021, assuming an initial COVID-19 vaccine rollout becomes widespread throughout the year.

“To overcome the impacts of the pandemic and counter the investment headwind, there needs to be a major push to improve business environments, increase labour and product market flexibility, and strengthen transparency and governance,” said World Bank Group President David Malpass.

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