April 2020 | Edition No. 21 Global Policy Options Pandemic Policy Options Global COVID-19 Pandemic Food Security COVID-19 Food GDP Security Growth GDP Healthcare Growth System Healthcare Locust Invasion System Locust Invasion Turbulent Times for Growth in Kenya Policy Options during the COVID-19 Pandemic Turbulent Times for Growth in Kenya Policy Options during the COVID-19 Pandemic © 2020. World Bank Group This work is a product of the staff of The World Bank with external contributions. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. 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TABLE OF CONTENTS ABBREVIATIONS............................................................................................................................................................................................................................................................... i FOREWORD.......................................................................................................................................................................................................................................................................... ii ACKNOWLEDGEMENTS.............................................................................................................................................................................................................................................. iii EXECUTIVE SUMMARY................................................................................................................................................................................................................................................ v THE STATE OF KENYA’S ECONOMY 1. Recent Economic Developments .................................................................................................................................................................................. 2 1.1. A major recession is underway for the regional and global economy....................................................................................................................... 2 1.2. Kenya’s economic growth would be adversely impacted by the COVID-19 crisis............................................................................................... 3 1.3. The authorities’ plan for fiscal consolidation has been paused to address the COVID-19 crisis.................................................................. 8 1.4. Kenya’s public debt stock is rising...................................................................................................................................................................................................... 12 1.5. Headline inflation remains low but could spike due to food supply chain disruptions.................................................................................. 14 1.6. Kenya’s external account balance is coming under pressure with expanding financing needs................................................................ 16 2. Outlook and Risks................................................................................................................................................................................................................ 19 2.1. Kenya’s growth outlook has been dampened by the COVID-19 pandemic ........................................................................................................... 19 2.2. Risks to outlook.............................................................................................................................................................................................................................................. 20 3. Policy Options during the COVID-19 Pandemic....................................................................................................................................................... 24 3.1. Strengthening the healthcare system and improving testing capacity..................................................................................................................... 24 3.2. Protecting the poorest and the most vulnerable..................................................................................................................................................................... 25 3.3. Supporting firms, protecting workers and jobs......................................................................................................................................................................... 26 3.4. Monetary and fiscal policies.................................................................................................................................................................................................................. 27 REFERENCES ....................................................................................................................................................................................................................................................................... 29 ANNEX TABLES ................................................................................................................................................................................................................................................................. 31 LIST OF FIGURES Figure 1: Global growth is tipped for a recession in 2020.................................................................................................................................................................... 2 Figure 2: GDP growth in the EAC has slowed significantly but remains positive.................................................................................................................. 2 Figure 3: Real GDP growth has decelerated.................................................................................................................................................................................................. 3 Figure 4: Growth in services and manufacturing will be severely impacted by the COVID-19 pandemic .......................................................... 3 Figure 5: Mobility changes relative to the baseline due to social distancing measures................................................................................................... 4 Figure 6: The PMI indicates negative business sentiments................................................................................................................................................................. 4 Figure 7: Private consumption accounts for most growth.................................................................................................................................................................. 5 Figure 8: The drag from net exports on growth is negative but much small in 2020 ....................................................................................................... 5 Figure 9: Baseline-2020 GDP growth of 1.5%............................................................................................................................................................................................... 6 Figure 10: Beds per 1000 people ........................................................................................................................................................................................................................... 8 Figure 11: Number of physicians per 1000 people...................................................................................................................................................................................... 8 Figure 12: Actual fiscal deficit is wider relative to the target................................................................................................................................................................. 9 Figure 13: Budget deficits are driven by revenue shortfalls and expenditure increases...................................................................................................... 9 Figure 14: Average corporate tax rates (before Kenya’s announced change)............................................................................................................................ 11 Figure 15: Average indirect tax rates (before Kenya’s announced change)................................................................................................................................. 11 Figure 16: Average tax rate by tax bracket........................................................................................................................................................................................................ 12 Figure 17: Share of PIT in total expenditure by quintile............................................................................................................................................................................ 12 Figure 18: Average top personal income taxes in Kenya (before tax changes)......................................................................................................................... 12 Figure 19: The public debt stock has increased............................................................................................................................................................................................. 13 Figure 20: Public debt expansion is driven by wider primary balance .......................................................................................................................................... 13 Figure 21: The composition of Bilateral creditors has changed over time(% of external debt)...................................................................................... 14 Figure 22: Exposure to the US dollar (end-Dec 2019) is very high (percent of total)............................................................................................................. 14 Figure 23: Inflation is contained within the official target...................................................................................................................................................................... 15 Figure 24: Food prices have increased................................................................................................................................................................................................................ 15 Figure 25: Stocks Pricing in Global Recession ................................................................................................................................................................................................ 16 Figure 26: External financing costs rising.......................................................................................................................................................................................................... 16 Figure 27: Credit to the private sector remains subdued........................................................................................................................................................................ 16 Figure 28: The cut in the CBR should support credit growth .............................................................................................................................................................. 16 Figure 29: The current account balance has narrowed ........................................................................................................................................................................... 18 Figure 30: The nominal exchange rate has depreciated ......................................................................................................................................................................... 18 Figure 31: Official borrowing and private investment inflows financed the current account deficit......................................................................... 18 Figure 32: Gross official foreign reserves are adequate............................................................................................................................................................................. 18 LIST OF TABLES Table 1: H1 of FY2019/20 fiscal out-turn (% of GDP).............................................................................................................................................................................. 10 Table 2: Budgetary implications of COVID-19, FY2019/20 ............................................................................................................................................................... 11 Table 3: Structure of PPG external debt......................................................................................................................................................................................................... 14 Table 4: Medium term GDP growth projections ..................................................................................................................................................................................... 19 LIST OF BOXES Box 1: Authorities’ response to the COVID-19 pandemic................................................................................................................................................................ 5 Box 2: Varying public health policy responses...................................................................................................................................................................................... 7 Box 3: Features to be considered in the design of fiscal response package....................................................................................................................... 13 Box 4: Impact of the COVID-19 pandemic and Locust invasion on food security......................................................................................................... 17 ABBREVIATIONS AGOA African Growth and Opportunity Act ASAL Arid and Semi-Arid Lands CPI Consumer Price Index CBR Central Bank Rate EAC East African Community COMESA Common Market for Eastern and Southern Africa CIT Corporate Income Tax EMDEs Emerging Markets and Developing Economies GDP Gross Domestic Product GoK Government of Kenya ICT Information and Communications Technology IDA International Development Association IMF International Monetary Fund KEU Kenya Economic Update KNBS Kenya National Bureau of Statistics KRA Kenya Revenue Authority MDAs Ministries, Departments, and Agencies NPL Non-Performing Loans NSE Nairobi Security Exchange NHIF National Health Insurance Fund NSNP National Safety Net Program NT National Treasury NSSF National Social Security Fund PFM Public Finance Management PMI Purchasing Managers’ Index PIT Personal Income Tax PPE Personal Protective Equipment PPG Public and Publicly Guaranteed SAGAs Semi-Autonomous Government Agencies SGR Standard Gauge Railway SME Small and Medium-Sized Enterprises SSA Sub-Saharan Africa VAT Value Added Tax April 2020 | Edition No. 21 i FOREWORD T he COVID-19 pandemic threatens both lives and livelihoods. Its impact on Kenya’s healthcare system, society, and the economy has been rapid and generated an unprecedented degree of uncertainty. Kenya faces an uncertain path as the COVID-19 shock, in addition to inflicting tragic loss of life and direct human suffering from illness, has very large, negative economic impacts. Against this challenging backdrop, the twenty-first edition of the World Bank’s Kenya Economic Update provides a detailed update of recent economic developments and the outlook, and discusses policy options to help confront the crisis. Stepping-up spending on the health sector to strengthen the capacity to cope with potential spikes in COVID-19 cases, and to flatten the epidemic curve over the short-run through health policy containment measures, remains a top priority. The authorities have already embarked on doing this, with additional budget allocation to the health sector to expand its capacity, including by procuring additional intensive care unit beds and respiratory-support machines. The emphasis should remain on quickly and efficiently deploying the additional resources to strengthen the health system’s capacity to cope the spread of the virus. A COVID-19 facility credit from the World Bank was quickly approved for $50 million on April 2. These resources will help the Kenyan government acquire critical supplies such as personal protective equipment and testing kits. Efforts are also under way to expand the necessary facilities to deal with a potential surge in cases, which might require isolation facilities in counties, additional intensive care units and respiratory-support machines. Measures to channel income and cash flow support to hard-hit households and firms are called for, given the scale of the economic shock, but such measures should be timely, targeted and temporary, especially since Kenya enters into this crisis with already stretched public finances. Economic policies should focus on reducing the immediate economic fallout and social pressures associated with social distancing and measures to contain the spread of COVID-19. Like all governments around the world, the Kenyan authorities face a difficult task in the face of huge uncertainties to minimize the loss of life and livelihoods in the face of the virus. Social distancing and other containment measures have helped to delay the spread of COVID-19, likely preventing unnecessary loss of life by preventing the healthcare system from being overwhelmed and buying time to strengthen it. Nonetheless, the containment measures are also costly to incomes and jobs by reducing social interaction, production and demand. This cost is aggravated by presence of a large informal sector in Kenya (accounting for at least 70% of employment), relatively high poverty rate, and significant unemployment rate among the youth. Government will need to continue to calibrate the response across the spectrum of containment options, and in doing so can be aided by maintaining a strong focus throughout on supporting the most poor and vulnerable households, including through cash transfers. C. Felipe Jaramillo Country Director for Kenya, Rwanda, Somalia, and Uganda World Bank ii April 2020 | Edition No. 21 ACKNOWLEDGEMENTS T he 21st edition of the Kenya Economic updated was prepared by a team led by Peter W Chacha and Angélique Umutesi. The State of Kenya’s Economy was written by Alex Sienaert, Angélique Umutesi, Celina Mutie, and Peter W Chacha. The policy options section was written by Peter W Chacha and Alex Sienaert, with contributions from Gabi Afram (FCI), Paolo Belli (Health), Jane Chuma (Health), Julia Smolyar (SPJ), Utz Pape (Poverty), and Vinay Vutukuru (Agriculture). The report benefited from excellent peer reviews from Max Rudibert Steinbach (Senior Economist, EPGDR); Marek Hanusch (Senior Economist, ELCMU); Sebastian Michael Essl (Economist, EMFMD); and Roberta Malee Bassett (Senior Education Specialist, HAFE1). The team received overall guidance from Abebe Adugna (Practice Manager, EA1M1), Philip Schuler (Lead Economist, EA1M1), Allen Dennis (Program Leader, AFCE2), and Felipe Jaramillo (Country Director, AFCE2). We are grateful to Anne Khatimba for providing logistical support, Keziah Muthembwa and Vera Rosauer for managing communication and dissemination, Robert Waiharo for design and layout of the report, and Paul Clark for editorial support. Close consultation with key policy makers in Kenya was instrumental in the production of this report. The preliminary findings in this report were shared with the National Treasury, KIPPRA, and the Central Bank of Kenya. The team also solicited views from a broad range of private sector participants. April 2020 | Edition No. 21 iii EXECUTIVE SUMMARY 1. The COVID-19 global pandemic will have a large run by supporting health policy responses for effective negative impact on the Kenyan economy. Even before containment of the epidemic spreading. Secondly, pivot being affected by the novel coronavirus, Kenya’s economy towards addressing the economic fallout and social had decelerated. The real GDP growth in 2019 was about pressures associated with social distancing and shutdown 5.4%, down from 6.3 percent in 2018. The COVID-19 measures to contain the spread of COVID-19. Ensuring shock is expected to further reduce growth in 2020 that vulnerable households have cash-on-hand, workers with large impacts on services (transport, retail trade, continue to receive salaries - even when temporarily laid- tourism, events, leisure, etc.), industry (manufacturing and off-and ensuring that firms have enough cashflow (to pay construction), and agriculture. The health system is facing workers and suppliers) and avoid bankruptcies, as well as an unprecedented challenge to contain the spread of supporting the financial system to avoid a credit crunch, COVID-19 and care for the infected. In addition, measures are all important. These measures are discussed in detail taken to slow down the rate of infection, including home at the policy section of this KEU. confinement, travel restrictions, the closure of schools and entertainment spots, the suspension of public gatherings 4. Kenya’s medium-term growth prospects will be and conferences, and a nightly curfew, are expected to impacted by COVID-19, and much remains uncertain affect both production and consumption across the about the magnitude. The outlook adjusts for the economy. negative impact of COVID-19 on Kenya’s growth in 2020, whilst assuming that the economy will be able to rebound 2. Social distancing measures can be very successful relatively quickly and return close to its trend growth rate. in delaying the spread of COVID-19, which is desirable as However, the situation is evolving quickly, both in Kenya the country strengthens its healthcare system capacity. and in the global economy and the global economy is Nonetheless, it is also very costly to the economy. This cost tipped for a recession in 2020,1 with significant negative is aggravated by the presence of a large informal sector, spillovers on Kenya. As a result, the World Bank’s GDP high poverty rate, and unemployed youth population growth scenario for 2020 is for a baseline of 1.5 percent, (about 70 percent of the total population is below 30 before rebounding to about 5.6 percent over the medium years old). While Kenya’s social safety net is still nascent, term, on assumption that investor confidence will be and targeting of vulnerable households for interventions restored soon after the COVID-19 pandemic is contained. considerably challenging, urgent action is needed to Growth is also predicated on normal weather that should provide poor households with food, water, and other be supportive of agricultural output and that a swift basic supplies to cope with the crisis. This KEU looks at the and well targeted policy response to COVID-19, will array of health policy responses to flatten the COVID-19 support the economy’s resilience. An adverse scenario infection curve, starting from the most voluntary / of a recession of about -1.0 percent is also presented on individual response choice (the Swedish model) to a assumption of significant supply and demand shocks complete lockdown (the Wuhan-China model). This policy with feedback stemming from each of these forces. To decision is very impactful on the economy, survival of the put the adverse scenario into context, it is expected that informal sector and SMSEs, and households’ livelihoods. the shock will be larger and reduce growth below that The trade-offs are enormous but selecting a variation that of 2008, when Kenya grew by 0.2% (from 6.9 percent in works for Kenya’s specific context is even more critical. 2007) as a result of post-election violence, drought, and the global financial crisis. 3. Macroeconomic policy during the crisis period could seek to achieve two key objectives. First, stepped- 5. Risks to the growth outlook remains on the up spending on the health sector to strengthen the downside. The greatest uncertainty to Kenya is the extent capacity to cope with potential spikes in COVID-19 of the impact of COVID-19 global pandemic. Kenya is only cases, and to flatten the epidemic curve over the short- at the beginning of a very uncertain path as the COVID-19 1 https://www.imf.org/en/Publications/WEO/Issues/2020/04/14/weo-april-2020 April 2020 | Edition No. 21 v Executive Summary shock is expected to significantly reduce growth. A more pandemic. Many depend on farming (for rural), self- severe global recession due to the virus would undermine employment and informal wages (for the urban). They Kenya’s export demand, tourism receipts and remittance have limited coverage of pension and unemployment inflows. Other residual downward risks include possible insurance schemes, which makes most restrictive fiscal slippages and weather-related shocks. Unanticipated containment measures less effective. Protecting earnings large-scale community transmission of COVID-19 together and reaching them through transfers is also considerably with likely tougher government measures (like full more challenging due to lack of physical addresses and a lockdowns) and extension of restrictions for a longer lack of updated household welfare registers. Kenya is in time, could disrupt domestic economic activity more an advantaged position, however, because it has social severely and reduce growth below the baseline. The protection and social assistance programs covering extent of the COVID-19’s impact on the economy could approximately 1.2 million households that can be scaled add excess fiscal pressures resulting into another round up to extend coverage. Unfortunately, there is no specific of fiscal slippage, which could derail efforts to contain social safety net program in place for slum dwellers and debt growth and further crowd out private sector-led urban poor/informal sector workers, which seem to be growth after the crisis. Drought and a second-round of among the most affected subgroup of the population locust invasion (in mid-year), if they materialized, could because of the initial movement restrictions imposed. also reduce agricultural output and hurt rural incomes. The combination of available cash transfer schemes (for scaling up) and sufficient coverage of mobile payments 6. Several policy options could be deployed to care should be maximized in protecting the poor and the for those infected, to support firms, and to protect the most vulnerable households. most vulnerable households to cope with the crisis. The top priority is to care for those infected and contain the 8. It is also important for the authorities to ensure spread of the virus. Some of the COVID-19 health policy that the food value chain remains intact by addressing responses (self-quarantine, school closures, wearing key logistics bottlenecks. The COVID-19 crisis could masks, increasing cleanliness, social distancing, and a contribute to increased food insecurity as prices of staples nighttime curfew) should help decrease the replication are rising (with a recent uptick in food inflation to around rate of the disease. Given existing capacity of Kenya’s 10.6 percent in March 2020 from about 2.8 percent in the health care systems, these containment policies are also same month in 2019). With the introduction of a nighttime key to buy authorities time to ramp-up investment in curfew and lockdown in some counties, it is important hospital infrastructure (increase number of intensive care for the Government of Kenya (GoK) to minimize logistics beds, put up temporary isolation facilities in counties, disruptions so that major staple commodities can move obtain respiratory-support machines, stock up essential across counties without barriers and frictions, which medicines, procure medical testing kits, preventive kits can lead to increased prices. It is also important to take among others.). In addition, ramping up testing and advantage of the stable global food supply markets to isolation, collecting the right data (through testing) close any gaps in main staples (rice, wheat, maize, and and conducting extensive statistical analysis can help beans).2 save many lives. Evidence from South Korea suggests that embarking on massive testing and imposing self- 9. The COVID-19 crisis is damaging otherwise healthy quarantine for those testing positive and isolating the firms through four channels: Falling demand and most vulnerable (the elderly) from exposure could contain revenues, reduced input supply, tightening of credit the spread. conditions, and increased uncertainty. Protecting jobs and firms to cope with the pandemic is important. The 7. Increasing support to poor and the most government has already implemented several measures vulnerable households is another crucial policy action. to support formal firms’ liquidity and cashflow including The hardship from the crisis would disproportionately tax cuts (Corporate income TAX (CIT), and turnover rates), befall the poorest and most vulnerable groups in Kenya. expediting Value added Tax (VAT) refunds and payment They do not have resources to cope with the lockdowns of pending bills. These measures can be critical to help and quarantines needed to contain the spread of the firms survive, considering that many firms were already 2 http://www.amis-outlook.org/: global prices of wheat and maize have been trending downward through March, rice has been trending upward. vi April 2020 | Edition No. 21 Executive Summary facing liquidity challenges. Making these liquidity the crisis is likely to lead to another round of increased injections into formal businesses in a timely manner non-performing loans, lower interest rates will stimulate could make the difference between having a small uptick activity generally, helping ease the burden on businesses in unemployment or a significant rise in the numbers of whose activities have been disrupted. It may also be unemployed and a delayed recovery, post-crisis. appropriate to provide more liquidity support to banks that are likely to be affected by deterioration of credit 10. Finally, monetary policy easing and exercising quality or facing funding pressure while at the same time regulatory forbearance might be necessary as long as experiencing urgent demand for short-term credit from conditions remain difficult. Core inflation is low, and Small and Medium-Sized Enterprises (SME) and other the output gap remains sharply negative. There is room firms. The CBK could also support efforts enabling banks for monetary stimulus to support economic activity, and to provide temporary relief to ease borrowers’ financing the CBK has begun to implement this, starting with the constraints (in 2020), helping support activity and decision of the Monetary Policy Committee (MPC) to avoiding a sharp increase in non-performing loans (NPLs). lower the CBK rate to 7.25 percent on March 23. While Mobile payments to disincentivize use of cash during COVID-19 Photo: © | Sambrian Mbaabu/World Bank April 2020 | Edition No. 21 vii RECENT ECONOMIC TRENDS AND OUTLOOK Real GDP growth will be negatively impacted Growth of services and manufacturing sectors by COVID-19 crisis will be severely impacted 8 7 6.3 6 5.7 5.9 6.3 5.4 5.7 5.9 4.9 6 5 Percentage points 5.4 GDP growth (y-o-y %) 4.9 2.4 2.9 4 2.9 2.7 4 3 2.6 2 1.8 1.6 1.4 1.5 1.4 2 1.5 1 1.3 0.6 1.2 1.0 1.3 0.2 0.8 0.6 0 0.3 2015 2016 2017 2018 2019 2020 0 Agriculture Industry Services 2015 2016 2017 2018 2019 2020e Taxes and subsidies GDP growth Source: Kenya National Bureau of Statistics and World Bank Source: Kenya National Bureau of Statistics and World Bank Note: “e” denotes an is an estimate Mobility changes due to social distancing measures Kenya’s PMI indicates negative business show a decrease in economic activity sentiment in 2020 60 Retail and Recreation -45% PMI > 50 indicates an expansion 55 53.3 Transit stations -39% 50 PMI Index Grocery and Pharmacy -33% 45 PMI < 50 indicates a contraction Work Places -22% 40 National Parks -20% 37.5 35 Residences +17% 30 Feb-16 Sep-16 Apr-17 Nov-17 Jun-18 Jan-19 Aug-19 Mar-20 Source: https://www.gstatic.com/covid19/mobility/2020-03-29_KE_Mobility_Report_ Source: CFC Stanbic Bank en.pdf Inflation has picked up but remains within The CBK has reduced the policy rate to support economic the target range growth and to mitigate impact of COVID-19 10 12 40,000 35,000 10 8 Upper bound 30,000 Intebank volume 8 6 25,000 Percent Percent 6 20,000 4 15,000 4 10,000 2 Lower bound 2 5,000 0 0 0 Feb-18 Jul-18 Dec-18 May-19 Oct-19 Mar-20 2018-07-02 2018-12-05 2019-05-21 2019-10-28 2020-04-07 Overall in ation Volume (RHS) CBR (LHS) Interbank rate (LHS) Source: Kenya National Bureau of Statistics and World Bank Source: Central Bank of Kenya viii April 2020 | Edition No. 21 RECENT ECONOMIC TRENDS AND OUTLOOK Dollar financing costs for Kenya and other emerging The NSE 20 share index reflects investors’ assessment of markets are rising dramatically the global economy tipped for a recession in 2020 120 1000 900 110 800 Indexed 15 April 2019=100 100 700 Basis points 600 90 500 400 80 300 70 200 100 60 0 16-Apr-18 16-Jul-18 16-Oct-18 16-Jan-19 16-Apr-19 16-Jul-19 16-Oct-19 16-Jan-20 16-Apr-20 NSE20 DWJ Global EMBI- Global EMBIG-Kenya Source: JP Morgan Source: Haver Fiscal consolidation has been deferred until after the crisis The stock of public debt is increasing 2018/19 2019/20e 2020/21f 2021/22f 2022/23f 80 0 -1 62.1 63.1 57.5 59.2 60 53.8 -2 Percent of GDP Percent of GDP -3 40 -4 -5 -6 -5.4 20 -7 -6.4 -8 -7.4 0 -7.7 2015/16 2016/17 2017/18 2018/19 2019/20e -7.8 -9 Domestic External Total public debt (Gross) Source: The National Treasury Source: The National Treasury Notes: * indicates preliminary results ,”e” denotes an estimate, “f” denotes forecast Notes: * indicates preliminary results ,”e” denotes an estimate, “f” denotes forecast April 2020 | Edition No. 21 ix The State of Kenya’s Economy Photo: © GoK The State of Kenya’s Economy 1. Recent Economic Developments 1.1. A major recession is underway for the reduced tourism receipts, as well as the effect of measures regional and global economy taken to contain the spread of COVID-19 pandemic. Prices 1.1.1. The global economy is projected to fall into a of crude oil and metals have decreased by about 50 recession due to COVID-19 shocks. The COVID-19 virus percent and 11 percent, respectively, between December and responses to it such as social distancing measures 2019 and March 2020, adversely affecting exports and and countrywide lockdowns are generating a negative revenue for Nigeria and Angola (major oil exporters) as well supply shock to the global economy. Industries have shut as South Africa (a large metal exporter). In non-resource operations, global production and transport chains are intensive economies, growth is expected to slow down being disrupted, and consumer demand is suppressed.3 significantly but remain positive. The weakening of growth This unanticipated shock will lead to a major downward reflects weak external demand, disrupted supply chains, revision of the World Bank’s baseline global growth and falling domestic demand. projection for 2020, which prior to the crisis was 2.5 percent.4 The expectation of a global recession reflects major 1.1.3. The East African Community (EAC) is expected negative impacts from the pandemic in both the advanced to post significantly slower growth in 2020 due to the and emerging market and developing economies (EMDEs), pandemic. As of April 22nd, the number of COVID-19 cases in including China. Simulations suggest that the COVID-19 the EAC is estimated at 802, with the following distribution: shock would be greater than the global financial crisis, Kenya (296), Rwanda (150), Uganda (61), Tanzania (284), when global output contracted by 1.7 percent in 2009. The and Burundi (11). Countries have adopted various recent collapse in the price of oil is also expected to weigh strategies of containing the spread of COVID-19 including heavily on the growth of oil exporters. a ban on international flights, closure of schools, barring large gatherings, nightly curfews, and outright lockdowns. 1.1.2. Growth in sub-Saharan Africa (SSA) is projected Tanzania has imposed the least stringent measures to slip into its first recession in 25 years.5 Average growth of social distancing, while Rwanda and Uganda have is expected to decline from 2.4 percent in 2019 to a range introduced the most restrictive containment measures, of between -2.1 and -5.1 percent in 2020. This translates including complete lockdowns. The combination of a to a loss in output of between US$ 37 billion and US$ severe external demand shock and domestic demand 79 billion. The downward revision reflects deteriorated shocks associated with the public health measure taken external demand following a sharp contraction in output to contain the spread of COVID-19 are expected to reduce growth among the region’s key trading partners (China growth to an average of 3.1 percent in 2020, down from and Europe), a fall in commodity prices (oil and metals), about 5.8 percent in 2019. Figure 2: GDP growth in the EAC has slowed significantly but Figure 1: Global growth is tipped for a recession in 2020 remains positive 5 12 3 10 1 GDP growth (y-o-y %) 8 GDP growth (%) -1 -2.1 6 5.1 -3 -3.0 4.0 4 -5 3.0 -5.9 2 -7 1.5 -7.5 -9 0 2015 2016 2017 2018 2019 2020e 2015 2016 2017 2018 2019 2020e USA World Euro Area SSA Tanzania Rwanda Kenya Uganda Source: World Bank, Springs 2020 MFMOD (unpublished) and IMF (World Economic Outlook, April 2020) Note: EAC average growth excludes South Sudan 3 Fornaro and Wolf (2020); Richard Baldwin, Beatrice Weder di Mauro (2020). 4 https://www.worldbank.org/en/publication/global-economic-prospects. An update to Jan 2020 GEP will only be released in June 2020. The IMF WEO (April 2020) projects a global recession of -3.0 percent. 5 World Bank, April 2020: Africa’s Pulse. 2 April 2020 | Edition No. 21 The State of Kenya’s Economy 1.2. Kenya’s economic growth would be • Kenya’s goods exports (horticulture, tea and coffee) are adversely impacted by the COVID-19 coming under pressure. Flower exports have already crisis been hit hard, including due to the disruption to what 1.2.1. Even before being affected by the COVID-19 would normally be peak Mother’s Day demand in Europe. pandemic shock, Kenya’s economy had decelerated. • Reduced tourism earnings. As a result in 2020 tourist The economy expanded by 5.4 percent in 2019, down arrivals is expected to decline sharply. from 6.3 percent in 2018 (Figure 3). The slower growth • A slowdown in remittance inflows: Although they was associated with underperformance in agriculture (due remained broadly steady as of January-March 2020, to poor rains) and private investment, which weakened remittances could come under pressure due to due to crowding out from widening fiscal deficits and, adverse effects on the economies where the Kenyan relatedly, limited private sector credit growth (7.1 percent diaspora is working. Kenya recorded remittances of year-on-year in December 2019). Nonetheless, strong $2.9bn in 2019 (2.9 percent of GDP), with the bulk of performance in the services sector helped overcome a remittances coming from the UK (34 percent) and the slowdown in agricultural output (Figure 4). This represents US (30 percent). Remittances had been growing rapidly a 0.4 percentage point downward revision compared to (doubling since 2014). the October 2019 Kenya Economic Update estimate.6 1.2.2. The COVID-19 global pandemic will have a large 1.2.3. The above external shock has been reinforced negative impact on Kenya’s real GDP growth in 2020. by an even stronger domestic demand and supply shock, Economic activity is weighed down by a combination of weighing down the economy significantly. Initially, supply and demand shocks originating from both the COVID-19 looked like an external demand and supply external and domestic fronts. On the external side, supply shock (i.e. decline in commodity prices, falling demand for and demand shocks are being transmitted through exports -including for services like tourism, disruption in several channels: the global supply chains). However, the policies that have • Global supply chains are being disrupted, reducing the been needed to contain the spread of the virus (i.e. social availability of intermediate and capital goods, as a result distancing, home confinement, travel restrictions, closure of shutdowns in the source countries, and transport of schools, closure of bars and restaurants, suspension of disruptions. Kenya’s monthly imports, notably from public gathering and conferences, and a nightly curfew) China, contracted sharply in the months of January- being deployed to delay the spread of COVID-19 (Box 1) March 2020. A large share of retail goods in Kenya are are constraining domestic demand. In this situation, shipped in from China and shortages of these goods households tend to ramp-up their precautionary savings, could raise consumer prices. while firms wary of investing until the crisis clears with Figure 4: Growth in services and manufacturing will be severely Figure 3: Real GDP growth has decelerated impacted by the COVID-19 pandemic 8 7 6.3 6 5.7 5.9 6.3 5.4 5.7 5.9 4.9 6 5 Percentage points 5.4 GDP growth (y-o-y %) 4.9 2.4 2.9 4 2.9 2.7 4 3 2.6 2 1.8 1.6 1.4 1.5 1.4 2 1.5 1 1.3 0.6 1.2 1.0 1.3 0.2 0.8 0.6 0 0.3 2015 2016 2017 2018 2019 2020 0 Agriculture Industry Services 2015 2016 2017 2018 2019 2020e Taxes and subsidies GDP growth Source: World Bank, Kenya National Bureau of Statistics Source: World Bank, Kenya National Bureau of Statistics 6 World Bank. (2019). Kenya Economic Update Edition 20. April 2020 | Edition No. 21 3 The State of Kenya’s Economy Figure 5: Mobility changes relative to the baseline due to social Figure 6: The PMI indicates negative business sentiments distancing measures 60 Retail and Recreation -45% PMI > 50 indicates an expansion 55 53.3 Transit stations -39% 50 PMI Index Grocery and Pharmacy -33% 45 PMI < 50 indicates a contraction Work Places -22% 40 National Parks -20% 37.5 35 Residences +17% 30 Feb-16 Sep-16 Apr-17 Nov-17 Jun-18 Jan-19 Aug-19 Mar-20 Source: https://www.gstatic.com/covid19/mobility/2020-03-29_KE_Mobility_Re- Source: Stanbic data port_en.pdf negative impacts on aggregate demand. There are underperformance in agricultural output affected agro- also feedback loops into a domestic supply shock, as processing, with food experiencing the largest decrease firms that are dependent on cashflows lack liquidity to (sugar, maize flour, processed fish and dairy) among fulfil commitments (pay salaries and suppliers) due to all manufacturing activities. In 2020, we expect agro- falling demand and could end up closing down due to processing to be nominally affected due to the food supply bankruptcy. chains disruption to contain the spread of COVID-19. Manufacturing of non-food items (such as cement, leather, 1.2.4. In 2020, growth performance of services assembly and sheet metal) will also get hit hard due to and manufacturing will be severely impacted by the global supply chain disruptions for intermediate goods COVID-19 pandemic. Actual data on the impact of and other inputs. Domestic factors such as tight credit COVID-19 on the value added across sectors is not yet conditions, delays in obtaining tax refunds, and weaker available, but preliminary high frequency data indicates demand are also likely to constrain manufacturing. a significant slowdown in services and manufacturing. Retail and wholesale, transportation, accommodation and 1.2.6. On the demand side, private consumption restaurants have been adversely affected by public health has historically accounted for a large share (up to 77 measures to contain the spread of COVID-19. Mobility percent) of GDP and real GDP growth (Figure 7) but this trends relative to pre-COVID-19 for Kenyans to restaurants, is expected to slow down significantly in 2020 due to cafes, shopping centers, theme parks, museums and movie the pandemic. Strong private consumption is associated theatres have contracted by up to 45 percent (Figure 5). with better agricultural harvests, and a sizeable diaspora Similarly, mobility trends to public transport stages, grocery remittances inflow (estimated at 2.9 percent of GDP in and farmers markets, workplaces, and National parks have 2019) and continued (albeit slow) access to micro credit.7 all been negatively affected. Mobility around residences has The solid pace of household consumption growth is increased by 17 percent relative to the baseline reflecting positive in as much as it reflects rising disposable incomes working from home policies and closure of schools and in Kenya, in turn due to the economy creating more and other entertainment spots. better jobs. Nonetheless, with COVID-19 impacting on remittances and creating greater uncertainty around job 1.2.5. The Purchasing Manager’s Index (PMI) has security, and the longevity of measures put in place to fallen below the 50-points mark indicating declining contain the spread of the disease, private consumption is orders and growing negative business sentiment in expected to decrease markedly in 2020. the manufacturing sector. The PMI has fallen below the 50-point mark for the second consecutive month (February 1.2.7. COVID-19 is expected to constrain the and March 2020), dropping from about 53.3 points in contribution of investment to growth as the private December 2019 to 37.5 points in March 2020. In 2019, the sector waits for the crisis to clear and faces potential 7 Micro-credit is provided through mobile platform such as Mshwari by NCBA and Safaricom, Equitel by Equity Bank and Fuliza provided by Safaricom, among others. 4 April 2020 | Edition No. 21 The State of Kenya’s Economy Box 1: Authorities’ response to the COVID-19 pandemic • Health-related measures: An inter-ministerial committee was established in late February to co-ordinate and undertake measures aimed at containing the spread of COVID-19 and strengthening the capacity of the health system. The committee’s mission includes enhancing preparedness by equipping hospitals, coordinating all activities related to Kenya’s response, enhancing surveillance at Kenya’s ports of entry, coordinating supply of testing kits and critical medical supplies including masks and protective gear. All measures taken have been communicated in daily press briefings. • The government has taken measures aimed at reducing risks of community transmission of COVID-19, including suspension of all international flights, shutting national borders to all but nationals, established isolation facilities, quarantine of at-risk persons, closure of schools and universities, implementation of social distancing measures, encouraging home based working, and a nighttime curfew. • Fiscal policy response: Additional spending to strengthen the health system, protect vulnerable households and ease firms’ liquidity constraints, include appropriations of Ksh.39.8 billion (0.4% of GDP). Ksh.6.8 billion of this spending was allocated to the health sector, most of which is covered by a US$ 50 million IDA credit through the COVID-19 emergency response package, approved by the Board in late March 2020. Other outlays include Ksh.13.8 billion to clear pending bills, Ksh.10 billion for VAT refunds, and Ksh.10 billion to scale up cash transfers to vulnerable households. • The National Treasury (NT) has submitted and Parliament approved a package of tax measures, including full income tax relief for persons earning a gross monthly income of up to Ksh.24,000 (or US$ 225); reduction of corporate and individual income tax rate (PAYE) from 30 percent to 25 percent; reduction of turnover tax rate on all micro, small and medium enterprises (MSMEs) from 3 percent to 1 percent; and a reduction of the standard VAT rate from 16 to 14 percent. The annual costs of these tax cuts are estimated at 1.5 percent of GDP. The authorities intend to fully offset the revenue lost by removal of tax exemptions. • The fiscal framework is being adjusted through a supplementary budget under preparation, including a relaxation of the fiscal deficit to 8 percent of GDP in FY2019/20 from the previous target of 6.3 percent of GDP. Further expenditure savings are expected to be realized through realignment of capital expenditures and postponement of low-priority projects. • Monetary policy response: Additional monetary stimulus and liquidity support by the CBK, including reduction of the policy rate (CBR) to 7.25 percent from 8.25 percent; reduction of the cash reserve ratio to 4.25 percent from 5.25 percent; and granting of flexibility to banks on provisioning requirements for loans restructured due to the pandemic. • Extending flexibility to borrowers on loan terms based on individual circumstances arising from the pandemic; and setting fees for mobile transactions in amounts less than Ksh.1000 at zero to disincentivize use of cash. Source: World Bank staff liquidity constraints. Private investment contribution’s to COVID-19 situation clears but more fundamental they growth has been weak in the past years. For example in face low demand as a result of social distancing measures. 2019, it is estimated that the component accounted for Small businesses that are dependent on cashflow (i.e. about 0.4 percentage points of GDP, similar to its 2018 level cashflow to asset ratio is high) are likely to run out of liquidity (Figure 7). In 2020, most firms wary of investing until the to fulfil their commitments, as demand crashes. Public Figure 8: The drag from net exports on growth is negative but Figure 7: Private consumption accounts for most growth much small in 2020 10 2 8 1 6 Percentage points Percentage points 4 0 2 -1 0 -2 -2 -4 -3 -6 2015 2016 2017 2018 2019 2020e -4 Private Gross Fixed Investment Government Investment Private Consumption 2015 2016 2017 2018 2019 2020e Net exports Government Consumption GDP Exports Imports Net exports Source: World Bank, Kenya National Bureau of Statistics Source: World Bank, Kenya National Bureau of Statistics April 2020 | Edition No. 21 5 The State of Kenya’s Economy investment is also expected to slow down significantly as and retail trade, transport), to only small reductions in the civil works will be delayed by global supply disruptions and areas expected to be most resilient to COVID-19 impacts the limited supply of labor associated with COVID-19. The (e.g. agriculture, public administration). Projections also GoK is also in the process of readjusting its development incorporate estimates regarding the scope for activity in budget to create space for more pressing health related sectors to rebound after the period of disruption, which expenditures, which will affect public investment. is expected to be significant, for example, in sectors like construction and manufacturing, but low in the hospitality 1.2.8. Historically, net exports’ contribution to real industry (reflecting in part the likelihood that the industry GDP growth is negative as import volume is larger than recovers only slowly at the global level). export volume. The extent of the drag of net exports depends on the volume of imports, because export 1.2.11. In the second scenario, economic activity is volume is largely stable and has been falling more recently, assumed to be severely disrupted for a longer, 3-month especially manufacturing exports. In fact, as a share of period. In this case, the period of major disruption extends GDP, exports of goods and services have contracted from from mid-March through mid-June, resulting in larger 19.7 percent in 2018 to about 15.7 percent in 2019 and estimated reductions in value-added across affected that decline will continue in 2020, owing in part to weak sectors in the current (second) quarter. The period of severe external demand, but also due to a significant contraction disruption is also extended beyond this for the hospitality in manufacturing exports (estimated at 2.1 percent of GDP sector, to approximately six months. As a result, real GDP in 2019). On the other hand, import volume is expected to in 2020 is projected to expand by 1.5 percent in scenario decrease from 20.4 percent of GDP in 2019 to about 18.8 one, and to contract by 1.0 percent in scenario two (Figure percent of GDP in 2020, partly due to a lower oil import 9). The wide range in these projections is indicative of bill and reduced imports of capital and transportation the sensitivity of the growth outlook to how widespread equipment but also due to the COVID-19 shock resulting COVID-19 becomes in the country, the intensity and in reduced imports of consumer goods. As a result, the duration of social distancing measures that are slowing drag of net exports on growth in 2020 is approximately 0.3 down economic activity, and global developments. percentage points, which is lower relative to an estimated drag of 0.5 percentage points in 2019 (Figure 8). Figure 9: Baseline-2020 GDP growth of 1.5% 10.0 Implications to growth estimate for 2020 5.0 1.2.9. Projections of Kenya’s economic growth rate are 0.0 currently highly uncertain. The economic outcome will Percent -5.0 hinge on how the pandemic plays out internationally and -10.0 within Kenya, along with policy actions, and the responses -15.0 of households and firms. The elevated uncertainty regarding -20.0 the growth outlook makes it appropriate to consider -25.0 different plausible scenarios, and their implications for the 2017Q1 2017Q2 2017Q3 2017Q4 2018Q1 2018Q2 2018Q3 2018Q4 2019Q1 2019Q2 2019Q3 2019Q4 2020Q1 2020Q2 2020Q3 2020Q4 2021Q1 2021Q2 2021Q3 2021Q4 economy. Historical Baseline Adverse 1.2.10. In the first scenario, economic activity is Source: World Bank assumed to be severely disrupted for two months, followed by a relatively rapid normalization. Severe The trade-offs between strict lockdown and disruption to economic activity is considered to have citizen’s tolerance for containment measures begun in mid-March, affecting the last two weeks of 1.2.12. The social distancing measures are viewed the first quarter, and is assumed to extend for the first favorably in delaying the spread of COVID-19, which six weeks of the second quarter (i.e. through mid-May). is necessary as the country ramps-up investment to During the period of severe disruption, estimated decreases strengthen the capacity of its health care system. The timing in economic activity and value-added are applied, ranging of these containment measures is even more important from above 50 percent in the hardest-hit areas of the than the measures themselves. The Kenyan government economy (e.g. accommodation and restaurants, wholesale acted swiftly to put in place containment of the spread of 6 April 2020 | Edition No. 21 The State of Kenya’s Economy the disease immediately after the first case on March 13, 1.2.13. Containment measures have the main objective which explains why after more than a month since the first of flattening the epidemic curve over the short-run COVID-19 case, Kenya has about 296 confirmed cases. By and allow strengthening of the country’s health care contrast to Kenya, countries in the advanced economies, system to cope with the number of patients requiring unfortunately “closed the barn door after the horses were critical care. Nonetheless, these measures are also quite out”, since they imposed the lock down when they had costly to the economy. This cost is aggravated by presence already had thousands of cases. Furthermore, some of a large informal sector, high poverty rate, significant containment strategies make sense in certain phases of unemployment, and a youthful population (about 70 the epidemic but not in others. For example, tracing all percent of total population is below 30 years). Many cases and isolating them makes sense when you still have households depend on farming, self-employment and relatively few cases. However, once a country reaches informal wage. Protecting their earnings and reaching higher numbers this strategy is just not practical. It is for households through cash transfers is essential to ensure this reason that countries have adopted various public containment measures receive support. This is important health responses, and we show that Kenya is viewed to lie because citizen’s tolerance of containment measures is in the intermediate containment space (Box 2). quite short-term.8 Box 2: Varying public health policy responses Different social distancing policies have been implemented across nations, with varying effects. There is still some flexibility in the policies but there is a strong call for more stricter containment measures to flatten the epidemiologist infections curve. Everybody needs to do more, “Not testing alone. Not contact tracing alone. Not quarantine alone. Not social distancing alone. Do it all.” Says WHO Slow response to Shutting bars, restaurants, Lockdown excepts barring gathering theatres, cinemas and gyms essential trips with Director General Tedros Adhanom Ghebreyesus. In Kenya, the stringency (Sweden) Closing of schools, colleges, Police enforcement universities, churches, (China, Italy, Spain) of measures adopted to date places the country at the intermediate nightly curfew range. More recently, it is becoming clear of the need for developing countries to customize COVID-19 spread containment measures to reflect local context and constraints faced by governments such as limited fiscal Voluntary Intermediate Strict lockdown space, and much less operational capacity to respond to help households self-isolation (Sweden) containment (Kenya) (Wuhan-China) and firms weather the crisis. (1) The Sweden model (voluntary isolation): In Sweden restaurants and bars remain open, playgrounds and schools too, and the government is relying on voluntary action from its citizens to prevent the spread of COVID-19. Much of Sweden’s focus has been to protect the elderly. Anyone aged 70 or older has been urged to stay at home and limit social contact.(2) The WHO is skeptical of this approach, which is against its recommended lockdown measures to control the spread and strengthen the capacity of the health system to cope. The jury is still out on whether the strategy adopted by Sweden will work or not. Nonetheless, Sweden had various strengths before the crisis. For instance, it is estimated that some 40% of the country’s workforce worked from home regularly, even before COVID-19 and that the country has one of the most generous welfare safety nets. For example, state support kicks in on day one of absence from work due to a child being sick. The Wuhan-China Model (Strict lockdown): On January 23, 2020, authorities shut down Wuhan-the epicenter of COVID-19. Lockdown measures were also extended to other parts of surrounding Hubei province. On February 13, changes in counting methods caused a surge in reporting with 15,133 new cases, but 12 days later the official reported new cases begun to decrease. On March 24, authorities announced that Wuhan lockdown will be lifted on April 8. New cases of transmission dropped to zero about 8 weeks after the country’s massive quarantine of some 60 million people in Hubei province. What the numbers don’t reveal, however, is the sheer deprivation the strict containment measures inflicted on Wuhan residents. Small businesses teetered on the verge of bankruptcy. (1) https://www.worldbank.org/en/region/afr/publication/africas-pulse (2) https://edition.cnn.com/2020/04/10/europe/sweden-lockdown-turmp-intl/index.html Source: World Bank staff 8 https://voxeu.org/article/remobilising-workforce-world-war-covid April 2020 | Edition No. 21 7 The State of Kenya’s Economy 1.2.14. It is critical for the authorities to use the current could redistribute the non-pandemic related intensive care attempt to slow down the pandemic progress to to other relatively safer counties. strengthen the healthcare system. Like many developing economies, Kenya faces higher risks with much lower 1.3. The authorities’ plan for fiscal heath system capacity (e.g. fewer beds per population consolidation has been paused to address the COVID-19 crisis (Figure 10), intensive care units, physicians per 1000 people (Figure 11), and respiratory-support machines). 1.3.1. Adequate policy responses to counter COVID-19 The authorities have already embarked on doing this with carry fiscal costs. Although the government remains an additional budget allocation to the health sector to focused on maintaining fiscal sustainability and reducing expand its infrastructure, procure additional ICU beds and debt-to-GDP to about 50 percent over the medium term, respiratory-support machines to help manage a potential the exogenous shock imposed by the COVID-19 pandemic spike in the COVID-19 infection. Nonetheless, doing this makes fiscal consolidation considerably more difficult, as more efficiently including identifying temporary isolation the shock will negatively impact revenue collection and facilities in counties, moving faster in the procurement increase expenditure pressures. of ventilators, and supplying of testing kits will make the difference. 1.3.2. Before the outbreak of COVID-19, the fiscal deficit had expanded to 7.7 percent of GDP in FY2018/19 1.2.15. Investing in testing and isolating those (from 7.4 percent in FY2017/18) and nominal public debt that test positive could help contain the spread of increased to 62.4 percent in December 2019. However, COVID-19, potentially delivering similar outcomes as a starting in late 2019, the government had expanded its strict lockdown. Evidence from South Korea, Taiwan, and revenue collection and tightened expenditure controls, Singapore suggests that embarking on massive testing which were expected to reduce the budget deficit by and imposing self-quarantine for those testing positive some 1.4 percentage points to 6.3 percent of GDP in and isolating the most vulnerable (the elderly) from 2019/20 (Figure 12) and contain debt from growing. This exposure could contain the spread without resorting to a steep consolidation was predicated on a combination of full lockdown.9 Testing of random representative samples revenue measures (including a one-off transfer of 0.7% will also help authorities learn the most contagious groups of GDP dividends from state-owned enterprises) and and isolate the vulnerable types. Furthermore, identifying expenditure rationalization measures. the severity of infections10 across Kenya’s demographic characteristics could help remobilize the population for 1.3.3. Revenue collection in the first half of FY2019/20 a return to production and restore aggregate demand. had improved with year-on-year revenue collection Further, if the contagion is concentrated in specific counties growing by 15.9 percent in December 2019 (above the (e.g. Nairobi, Mombasa, Kilifi, Mandera etc), then authorities growth of nominal GDP). Nonetheless, total revenue was Figure 10: Beds per 1000 people Figure 11: Number of physicians per 1000 people Tanzania Tanzania Ghana Uganda Uganda Rwanda Rwanda Ghana Kenya Kenya South Africa South Africa Vietnam Vietnam China China USA UK Italy USA UK Italy 0 2 4 6 8 10 0 1 2 3 4 Source: World Bank Source: World Bank 9 https://www.nytimes.com/2020/03/13/opinion/coronavirus-best-response.html 10 Study of 44,672 confirmed cases in Mainland China by the China Centre for Disease Control & Prevention show that 80% of infections are mild flu and don’t need hospitalization. 20% will need hospitalization. 8 April 2020 | Edition No. 21 The State of Kenya’s Economy Figure 13: Budget deficits are driven by revenue shortfalls and Figure 12: Actual fiscal deficit is wider relative to the target expenditure increases 2015/16 2016/17 2017/18 2018/19 2019/20f 30 28.0 27.8 0 26.9 26.0 25.2 25 -2 20.5 Percent of GDP 20 19.1 19.1 18.4 18.2 Percent of GDP -4 15 -6 10 -6.0 -6.3 -6.9 -6.8 -7.1 -7.4 -7.2 -8 -7.4 -7.7 5 -9.1 0 -10 FY2015/16 FY2016/17 FY2017/18 FY2018/19 FY 2019/20 Actual de cit Target de cit Total revenue and grants Total expenditure and net lending Source: The National Treasury Source: The National Treasury 1.3 percentage points below target (of 10.4 percent of GDP) 1.3.5. Additional expenditures have been allocated (Table 1) due to under-collection in appropriation in aid towards strengthening the healthcare systems to (AiA), corporate income tax (CIT) and personal income withstand a potential spike in the COVID-19 infections tax (PIT). On the other hand, expenditure pressures had and to address the associated economic crisis. The GoK has continued in FY2019/20, prompting the NT to adjust allocated more resources to the health sector to help strengthen upwards its deficit target (Figure 13). The increase the health system (Table 2). This is expected to fund expansion reflected the settlement of pending bills (payment of hospital infrastructure (increase number of intensive care arrears) for FY2018/19 but also the frontloading of beds, put up temporary isolation facilities in counties, obtain expenditures related to implementation of the Big 4 respiratory-support machines, supply of testing kits, preventive agenda. As a result, total expenditure for the six months kits etc.) as well as hiring of additional medical personnel and ending December 2019 was Ksh.1,145 billion (11.7 payment for extra workload (or over-time) of medical staff. percent of GDP) compared to a target of Ksh.1,308 billion Preliminary expenditures related to strengthening the health (12.6 percent of GDP) (Table 1). systems, social protection, supporting businesses, and security spending to police the national curfew is estimated at above 1.3.4. The COVID-19 global pandemic is straining Ksh.39.8 billion (or 0.39% of GDP). further the public finances. Revenue collection is declining due to a decrease in economic activities and new proposed 1.3.6. As a result, the fiscal deficit is expected to rise to discretionary changes to tax policy. The slowdown in 8 percent of GDP in 2020 (from a pre-COVID-19 target of economic activity is indirectly contributing to a significant 6.3 percent of GDP). This effectively means postponement slowdown in revenue collection, estimated at about of the fiscal consolidation effort until after the crisis. This is Ksh.84 billion (or 0.84% of GDP). Tax revenue from imports, understandable in the short run, because the additional profits, and consumption are all expected to decrease, fiscal stimulus is critical to avoid massive layoffs, bankruptcies with some tax bases are likely to contract much faster than and to support vulnerable households. Most tax cuts are the slowdown in nominal GDP. In addition, discretionary expected to be offset by the removal of tax expenditures changes to tax policy taken to support business and protect and exemptions under VAT and income taxes once the crisis vulnerable households are expected to result in large abates and recovery in economic activity begins. The fiscal revenue losses. The government has enacted several framework is being adjusted through a supplementary tax rates cuts, including a reduction in turnover tax rate budget II under preparation, including a wider fiscal deficit (from 3% to 1%); a cut in the corporation and individual (of 8 percent of GDP in FY2019/20 from the previous target of income tax rate(from 30% to 25%); a cut in the VAT rate 6.3 percent of GDP). While expenditure savings are expected (from 16% to 14%), principally to cushion SMEs, firms, to be realized through realignment of capital expenditures and households from the crisis. The estimated revenue and postponement of low-priority projects, a fiscal financing loss in FY2019/20 is approximately Ksh.39.2 billion (or gap is expected due to the COVID-19 fiscal measures. This will 0.38% of GDP).11 be closed by additional net domestic financing. 11 This estimate is obtained by pro-rating annual revenue loss from these tax cuts for the fourth quarter of FY2019/20. April 2020 | Edition No. 21 9 The State of Kenya’s Economy Table 1: H1 of FY2019/20 fiscal out-turn (% of GDP) FY2018/19 FY 2019/20 FY18/19 H1 FY19/20 H1 Act. Est. Act. Prel. Target in percent of GDP, unless stated otherwise Total revenue and grants 18.4 20.5 8.0 9.1 10.4 Total revenue 18.2 20.1 8.0 9.0 10.2 Ordinary revenue 16.1 17.8 7.2 8.3 9.1 Taxes on Intl. Trade & Transactions (Import Duty) 1.2 1.2 0.5 0.5 0.6 Excise Taxes 2.1 2.5 0.9 1.0 1.2 Taxes on Income, Profits & Capital gains (Income Tax) 7.3 7.8 3.3 3.5 3.8 Taxes on goods and services (VAT) 4.4 4.5 1.9 2.0 2.2 Other Revenue 1.1 1.8 0.6 1.2 1.3 Ministerial Appropriation in Aid 2.1 2.3 0.7 0.7 1.1 Grants 0.2 0.4 0.1 0.1 0.2 Total expenditure and net lending 26.0 27.8 10.8 11.6 12.7 Recurrent Expenditure 16.4 17.0 6.3 7.9 7.7 Domestic Interest 2.9 2.8 1.3 1.4 1.4 Foreign Interest due 1.1 1.5 0.5 0.6 0.6 Wages & Salaries 4.5 4.7 2.0 2.2 2.2 Development 5.8 7.9 3.1 2.5 3.4 County Transfer 3.9 3.7 1.2 1.2 1.6 Balance including grants (cash basis) -7.7 -6.3 -2.8 -2.5 -2.3 Total Financing 7.7 6.3 2.8 2.4 2.3 Net foreign financing 4.4 3.4 1.4 0.8 1.5 Net domestic financing 3.2 2.9 1.3 1.6 0.7 Primary balance -3.7 -2.0 -1.0 -0.5 -0.2 Memo: Nominal GDP estimate (Ksh. billion) 9,990.0 10,355.4 Source: The National Treasury Note: The above fiscal framework has been revised to accommodate the COVID-19 fiscal measures to be formalized in the context of supplementary budget II. The government’s fiscal package By reducing CIT to 25%, Kenya would align its rate towards the global average, which should be 1.3.7. While the fiscal response package (Box 3) is supportive of investment (e.g. attracting FDI) (Figure timely, it is still important to highlight its design and 14). Nonetheless, it is important for the authorities to features with regards to ensuring fiscal sustainability be aware that reversing the lowered tax rates may be post-crisis.12 All fiscal stimulus package should be difficult, especially if recovery after the crisis is slow, symmetrical, implying tax cuts during a recession should which would drive up the fiscal cost. Thus, the reduction be followed with a reversal (or tax increase) once the in the turnover tax should ideally contain a sunset economy recovers. In addition, such a package should clause to revert to 3 percent after a specific period of embrace specific attributes in its design. These include the time (e.g. 2-3 years). This is critical considering that efficiency of a particular instrument to achieve targeted the government faces a large, long-term fiscal deficit, objectives; cost and fiscal sustainability; flexibility to adjust and irreversible tax cuts would make this problem to changing circumstances, and administrative feasibility considerably worse post-crisis.13 (Box 4). This section examines the recent tax cuts along • The reduction in VAT rate is expected to boost these features. final consumption, which could benefit business • The government has introduced tax cuts for the sales and enhance households’ purchasing power. turnover and corporation tax rate (CIT) that should However, at 14% the VAT rate would be lower than support MSMEs, large and formal firms, respectively. regional comparators (the Africa average, Figure 15) and 12 Girouard, N. and C. Andre (2005). 13 A. Auerbach and W.Gale (1999) https://www.brookings.edu/research/the-case-against-tax-cuts/ 10 April 2020 | Edition No. 21 The State of Kenya’s Economy Table 2: Budgetary implications of COVID-19, FY2019/20 KSH. Billion Percent of GDP A. Expenditure measures (one-off costs) Health 6.8 0.1 Social protection 10.0 0.1 VAT refunds clearance 10.0 0.1 Pending bills clearance 13.8 0.1 Other, including water and sanitation 2.0 0.0 Total 39.8 0.4 B. Revenue measures CIT tax rate cut 13.7 0.1 PIT tax rate cut and threshold change 11.7 0.1 VAT rate cut 13.8 0.1 Turnover rate cut 0.1 0.0 Total 39.2 0.4 C. Revenue underperfomance due to COVID-19 84.1 0.8 Total impact of COVID-19 163.1 1.6 Memo Nominal GDP estimates (Ksh. Billion) 10,315 Source: IMF estimates could go against greater regional market integration. • The GoK has also initiated significant changes to Furthermore, similar measures taken in other countries individual income taxes (PIT), reducing the top rate to respond to the COVID-19 crisis entailed a temporary from 30% to 25%. In addition, those earning less reduction of the VAT rate, but were also often targeted than Ksh.24,000 per month have been exempted from at promoting consumption in sectors hit hard by the income tax. These measures seek to boost disposable crisis such as aviation, accommodation, and tourism incomes, but overall, they disproportionately benefit (e.g. China, Cyprus, Korea, and Norway). Theoretically, households which are best placed to weather the a permanent reduction would have no effect (due to current shock. The exemption of those earning less than Ricardian equivalence) as consumers would anticipate Ksh.24,000 per month from income tax does reduce the large future taxes and consider instead to save rather average tax rate for individuals in lower tax brackets, than spend their windfall from a rate cut. In any case, but the reduction of the top tax bracket on individual this reduction should also potentially have a sunset incomes benefits the average tax rate for those with clause and perhaps be better targeted. incomes above Ksh.480,648 (Figure 16). Thus, in terms of Figure 14: Average corporate tax rates (before Kenya’s Figure 15: Average indirect tax rates (before Kenya’s announced announced change) change) 35 25 30.0 30 28.2 27.2 20 19.2 25 23.4 21.1 15.6 16.0 Percent Percent 20 15 13.5 11.6 15 10 10 5 5 0 0 Asia avg. Lat.Am.avg. Africa avg. OECD avg. Kenya Asia avg. Lat.Am.avg. Africa avg. OECD avg. Kenya Source: KPMG Source: KPMG April 2020 | Edition No. 21 11 The State of Kenya’s Economy Figure 16: Average tax rate by tax bracket Figure 17: Share of PIT in total expenditure by quintile Average tax rate by tax bracket Share of personal income tax in total expenditure by quintile 20 9 18 8 16 7 14 12 6 Percent 5 Percent 10 8 4 6 3 4 2 2 1 0 < KSh24,000 KSh24,000 - KSh135,912 - KSh250,824 - KSh365,736 - KSh480,648 All 0 KSh135,912 KSh250,824 KSh365,736 KSh480,648 and above All Bottom 20% 2 3 4 Top 20% Average tax rate status quo Average tax rate with increased relief by quintile by quintile by quintile by quintile By quintile Average tax rate with reduced tax bracket Average tax rate with both changes Original Tax relief Tax bracket Both Source: World Bank Source: World Bank the share of total expenditure spent on PIT, the benefits stock. In FY2019/20, the primary balance is expected to stay of this policy changes are captured predominantly by at 3.7 percent of GDP, compared to a pre-COVID-19 target the top income quintile (Figure 17). of 2.1 percent (representing an additional debt creating • Kenya’s personal income tax rate for top-rate payers flow of 1.6 % of GDP). Gross public debt has increased from would drop below the regional averages (Figure 18), Ksh.5.0 trillion (53.8 percent of GDP) in 2015/16 to about suggesting that the measures would make Kenya’s Ksh.6.4 trillion (or 63.1 percent of GDP)14 in 2019/20 (Figure 19). The increase in debt stock was driven by a wider tax system considerably less progressive than the primary balance deficit (contributing about 0.3 percentage regional and global norms. Thus, reducing personal points), interest payments (3.8 percentage points), and income tax revenues risks being regressive in terms other residual factors (1.8 percentage points). In the past, of its overall fiscal incidence. In addition to negatively relatively strong nominal GDP growth and a stable local affecting equity within the pool of income tax-paying currency (against the US dollar) have contributed to a households, reducing income tax revenue overall also reduction in debt expansion (Figure 20). In 2020, however, means less revenue for pro-poor spending, including to both growth and the exchange rate are expected to come support the very poorest households with incomes too under pressure due to the impact of COVID-19. low to pay for essential public services, such as universal health coverage and free primary education. 1.4.2. The stock of Public and Publicly Guaranteed Figure 18: Average top personal income taxes in Kenya (PPG) external debt stood at US$ 30.7 billion (29.8 percent (before tax changes) 50 of GDP) in December 2019, up from US$ 26.7 billion (26.5 percent of GDP) in December 2018. Commercial 41.7 40 loans (including suppliers’ credit, commercial banks and 32.4 32.0 Eurobonds) amounted to US$10.5 billion (or 35 percent) of 30.0 30 28.0 total external debt by end-2019 (Table 3). In addition, the Percent bullet repayment nature of previous sovereign bonds raises 20 particular debt management challenges by generating spikes in refinancing risk. Approximately 33.4 percent of 10 the external debt is owed to multilateral creditors, among which IDA is the largest creditor (Table 3). The bilateral 0 Asia Latin America Africa OECD Kenya avg. .avg. avg. avg. component accounts for about 33 percent of external Source: KPMG debt, out of which non-Paris Club creditors accounted for about 23.4 percent (Figure 21). 1.4. Kenya’s public debt stock is rising 1.4.1. The widening of the fiscal deficit to 1.4.3. Kenya’s external debt vulnerabilities have risen accommodate the COVID-19 pandemic intervention because its debt service obligations are increasing measures is expected to increase Kenya’s public debt while export receipts and government revenues are 14 Kenya’s debt carrying capacity, which is a composite index capturing factors such as average institutional indicator (or CPIA), real GDP growth, remittances, international reserves and world growth is strong (3.12 vs a threshold of 3.02). Based on this, the PV of total public debt in percent of GDP terms is about 70 percent. 12 April 2020 | Edition No. 21 The State of Kenya’s Economy Box 3: Features to be considered in the design of fiscal response package Efficiency - The efficiency of a particular fiscal instrument to achieve given objectives in a cost-effective way will be influenced by: • Targetability – the extent to which the instrument allows to directly target specific groups or activities. • Speed – the time elapsed between the adoption of the instrument and the desired impact. • Abuse resistance – the ease to which amounts, and eligible beneficiaries can be controlled. Cost and fiscal sustainability - Containing the cost of fiscal measures involves consideration of costs and benefits of specific instruments and their interactions. For example, measures that aim at reducing layoffs may generate benefits in terms of reduced unemployment and social security payments. • Affordability – the extent to which the use of the instrument impacts on fiscal stability. In particular, instruments that provide support in the form of credits or through the deferral of payments will have lower cost implications than instruments in the form of outright grants and expenditure. • Predictability and control of cost – can upper limits for the cost of a program be established and can the actual cost be reasonably well predicted? Flexibility - The high uncertainty regarding the duration of the pandemic and the intensity with which Kenya will be affected, puts a premium on the flexibility with which an instrument can be deployed, including the ability to scale up the instrument or to stop its use as needed. • Scalability – the extent to which the instrument can be scaled in accordance with needs. • Reversibility – the ease with which the response can be withdrawn, without causing economic and behavioral distortions. Feasibility - Administrative ease – the extent to which the instrument can be implemented without significantly increasing the administrative burden, and resilience to health measures, such as social distancing and other pandemic impacts – the COVID-19 pandemic has direct impacts on the deployment of fiscal instruments. For example, scaling up of health expenditure may be constrained by a lack of qualified personal; support measures that involve human contact (especially) in groups will be less desirable than instruments that limit such exposure; and scaling up of investment may face supply side constraints if the pandemic limits contractors’ ability to operate. Source: World Bank staff decreasing in part due to the impact of COVID-19. adequate levels of official foreign reserves (US$8.8 billion Interest payments absorb at least 21.5 percent of by March 2020), Kenya is able to meet its near-term debt total revenues in FY2019/20 (up from 15.5 percent in repayment obligations. FY2016/17), reducing available revenue to cover primary expenditures (non-interest spending). Kenya’s traditional 1.4.4. With over half of Kenya’s public debt stock exports (horticulture, tea, and coffee) will be adversely being external, exposure to foreign currency risk affected in the context of a global recession. As a result, remains high. The main exposure is to the U.S. dollar at there is significant fiscal pressure associated with debt 71.3 percent, followed by the Euro at 15.4 percent, with the services obligations. However, against the background Chinese Yuan and Japanese Yen (JPY) at 6.1 percent and of large government financial assets (1.5% of GDP), and 4.3 percent, respectively (Figure 22). The global financial Figure 20: Public debt expansion is driven by wider primary Figure 19: The public debt stock has increased balance 80 15 62.1 63.1 Percentage points of GDP 59.2 10 60 57.5 53.8 5.1 Percent of GDP 5 3.7 2.9 1.7 1.0 40 0 20 -5 -10 0 2015/16 2016/17 2017/18 2018/19 2019/20e 2015/16 2016/17 2017/18 2018/19 2019/20e Primary balance Seignorage Growth e ect Interest Domestic External Total public debt (Gross) Revaluation Residual Change in debt Source: The National Treasury and Central Bank of Kenya Source: The National Treasury and Central Bank of Kenya April 2020 | Edition No. 21 13 The State of Kenya’s Economy Table 3: Structure of PPG external debt Dec-17 Dec-18 Dec-2019* US$ Millions Share US$ Millions Share US$ Millions Share Multilateral 8,154.90 35.8 8,588.30 32.1 10,238.50 33.4 o/w IDA 5,181.40 22.8 5,481.60 20.5 7,234.40 23.6 Bilateral 7,580.90 33.3 8,778.40 32.8 10,103.20 33 Paris Club 1,954.90 8.6 2,271.30 8.5 271.5 0.9 Non-Paris Club 5,626.00 24.7 6,507.10 24.3 7,165.90 23.4 Commercial 7,021.60 30.9 9,377.00 35.1 10,316.80 33.7 o/w Eurobond 2,750.00 12.1 4,750.00 17.8 6,100.00 19.9 Total 22,757.40 100 26,743.60 100 30,658.50 100 Source: National Treasury and World Bank Estimates. Nominal GDP estimate for FY19/20 US$100.5 billion Notes: * Provisional-data as at December 2019. 1/includes commercial banks (Eurobond) and Export Credit markets are effectively closed and financial flows to basket (vegetables, tomatoes and onions) (Figure 24). emerging markets and developing countries, such as Kenya Food inflation increased to 10.6 percent in March 2020 are likely to be scarce as the COVID-19 situation unfolds. from 2.8 percent in March 2019. The country rebased While the government is working towards reducing its the year it uses to calculate inflation to February 2019 exposure to the US dollar through contracting new debt from February 2009, in order to better reflect changing in other currencies, and by matching external liabilities consumer trends. Nonetheless, core inflation that with the currency composition of Kenya’s forex inflows and excludes food and energy to capture underlying inflation international reserves, there remains significant exposure trends,15 decreased to [2.9] percent in March 2020, from to the Ksh/U$S exchange rate. A depreciation of the local 3.1 percent in March 2019. Low inflation is consistent currency to the US dollar could significantly exacerbate with an economy where demand pressures are benign, debt service obligations. and where the output gap is sharply negative.16 1.5. Headline inflation remains low but 1.5.2. Food security in Kenya is facing a twin shock could spike due to food supply chain from restrictions in place due to the COVID-19 crisis and disruptions the earlier locust attack-contributing to a spike in food 1.5.1. Official statistics show that inflation picked up prices. The increase in prices has been largely due to the but stayed within the target range of 5±2.5 percent. disruptions to the food supply chain as a result of the In March 2020, inflationary pressures picked up to imposition of a curfew (although there are exemptions, 6.1 percent (from 4.4 percent in March 2019) (Figure the environment is generally less conducive for 23) as a result of increased prices for foods in the CPI overnight trucking)17 and the closure of some wholesale Figure 21: The composition of Bilateral creditors has changed Figure 22: Exposure to the US dollar (end-Dec 2019) is very high over time(% of external debt) (percent of total) 35 CNY, 6.1 30 9.4 6.5 9.9 9.6 EUR, 15.4 GBP, 2.7 25 11.3 JPK , 4.3 20 Percent 15 23.3 24.9 23.0 23.4 10 18.6 5 USD ,71.3 0 2015/16 2016/17 2017/18 2018/19 2019/20* Non-Paris Club Paris Club Source: World Bank based on National Treasury Source: World Bank based on National Treasury Note: * As of December 2019 15 Bryan, M. et al. (1994). 16 See the spring macroeconomic and fiscal model (MFMod) projections of potential and output gap. 17 https://www.the-star.co.ke/news/2020-03-27-excessive-force-by-police-on-first-night-of-covid-19-curfew/ 14 April 2020 | Edition No. 21 The State of Kenya’s Economy Figure 23: Inflation is contained within the official target Figure 24: Food prices have increased 10 100 8 Upper bound 80 Share of overall in ation 6 60 Percent 4 40 2 Lower bound 20 0 0 Feb-18 Jul-18 Dec-18 May-19 Oct-19 Mar-20 Feb-18 Jul-18 Dec-18 May-19 Oct-19 Mar-20 Overall in ation Food In ation Energy In ation Core In ation Source: Kenya National Bureau of Statistics and World Bank Source: Kenya National Bureau of Statistics and World Bank markets as a precautionary measure by some county policy committee has reduced the Central Bank Rate governments. While Kenya’s cereal producing counties (CBR) for three consecutive meetings. In November, the were spared of the first-round invasion of the locust CBR was reduced by 50 basis points to 8.5 percent (from invasion, there is a high probability that the second- 9 percent), followed by a further cut by 25 basis points to round invasion towards mid-year could impact major 8.25 percent in January 2020. Again, in March 2020, the food growing areas. The government is implementing a CBR was reduced by 100 basis points to 7.25 percent. In number of measures to mitigate the impact of the corona addition, the cash reserve ratio was reduced from 5.25 virus on food security and food prices (Box 4). percent to 4.25 percent to provide extra liquidity of about Ksh.35 billion to commercial banks. These measures are 1.5.3. The NSE 20 share index (as is the case with expected to prompt commercial banks to lower interest major stock indices) reflects investors’ assessment of rates for borrowers, while also supporting borrowers that a global economy tipped for a recession due to the could be distressed from the COVID-19 shock. COVID-19 pandemic. Major stock markets, globally and the NSE-20, are now in a bear market, consistent with 1.5.5. A more subdued aggregate demand and rising pricing in a global recession (Figure 25). Trends in the uncertainty is likely to derail faster growth in private NSE 20 index, which captures market expectations of the sector credit. The year-on-year private sector credit future earnings growth of the top 20 listed companies, growth increased modestly to 7.7 percent in February 2020 shows tanking stock prices in line with developments in (from 3.4 percent in February 2019) (Figure 27). Credit to major global indices. Additionally, dollar financing costs for the private sector is still weak and with likely increases in Kenya and other emerging markets are rising dramatically non-performing loans, commercial banks are expected to (Figure 26). This is consistent with large selloff by foreign be more cautious while the crisis persists. MSMEs could investors due to uncertainty with COVID-19.18 Thus, the encounter greater challenges to access financing with general economic outlook (as perceived by stock market reduced demand due to the COVID-19 containment investors) has weakened somewhat, and a global sudden measures. The average interbank rate has picked-up stop in financing has resulted due to COVID-19 related in March 2020 to 4.6 percent, from about 4.2 percent in fears by investors. February 2020 reflecting narrowing liquidity among banks and rising uncertainty (Figure 28). Nonetheless, since 1.5.4. In response to the adverse impact of COVID-19 the lifting of interest rate caps in November 2019, the on Kenya’s economy, the monetary policy committee interbank rate has decreased by some 250 basis points (MPC) has lowered its policy rate and reduced the cash from 6.9 percent in October 2019 to 4.6 percent in March reserve ratio to support economic activity. After the 2020, suggesting that liquidity flow across top and bottom repeal of interest caps in October 2019, the monetary tier banks has improved. https://www.iif.com/Publications/ 18 April 2020 | Edition No. 21 15 The State of Kenya’s Economy Figure 25: Stocks Pricing in Global Recession Figure 26: External financing costs rising (DWJ Global and Nairobi-20, indexed: 27 Feb 2019 = 100) (EMBIG index of sovereign bonds, spread over US treasuries) 120 1000 900 110 800 Indexed 15 April 2019=100 100 700 Basis points 600 90 500 400 80 300 70 200 100 60 0 16-Apr-18 16-Jul-18 16-Oct-18 16-Jan-19 16-Apr-19 16-Jul-19 16-Oct-19 16-Jan-20 16-Apr-20 NSE20 DWJ Global EMBI- Global EMBIG-Kenya Source: Haver Source: JP Morgan 1.5.6. While the banking system remains stable, account deficit is expected to narrow from 4.6 percent of profitable and well capitalized, uncertainty and risks of GDP in 2019 to 4.5 percent in 2020 (Figure 29), as decline increased default due to the impact of COVID-19, could in imports of goods and services more than outweighs increase financial sector stresses. This is especially the a sharp contraction in exports of goods and services. case in Kenya’s banking system where the level of non- Imports are expected to decrease from 20.4 percent of performing loans (NPLs), remains high (estimated at 12.7 GDP in 2019 to about 18.8 percent of GDP in 2020, mainly percent in February 2020).19 With falling demand, firms are due to a lower oil import bill and reduced import of capital likely to face cashflow challenges, including meeting their and transportation equipment. Exports are also expected debt service obligations. The CBK anticipates a potential to slow down from about 11.6 percent of GDP in 2019 spike in loan defaults and has granted flexibility to banks to about 10.5 percent of GDP in 2021, owing in part to on provisioning requirements for loans restructured due weak external demand, but also significant contraction in to the pandemic and extending flexibility to borrowers on manufacturing exports. Tourism and remittance inflows loan terms based on individual circumstances arising from are expected to contract significantly due to COVID-19. the crisis (Box 1). Reflecting the US dollar’s strong appreciation against most currencies, the nominal exchange of the shilling against 1.6. Kenya’s external account balance is the US dollar has depreciated by 4.2 percent between coming under pressure with expanding February 28 and April 14 (Figure 30). financing needs 1.6.1. The impact of COVID-19 on the external 1.6.2. Official borrowing and private investment account would be enormous through weak tourism inflows dominate the financing of the current account receipts, low exports and remittances receipts, as well deficit, but external financing needs have also increased. as more pressure on the exchange rate. The current The shock to emerging market and frontier economies’ Figure 27: Credit to the private sector remains subdued Figure 28: The cut in the CBR should support credit growth 28 100 12 40,000 24 35,000 80 10 30,000 Year-on-year growth (%) Year-on-year growth (%) 20 Intebank volume 60 8 25,000 Percent 16 40 6 20,000 12 15,000 20 4 8 10,000 0 2 4 5,000 0 -20 0 0 Feb-15 Jul-15 Dec-15 May-16 Oct-16 Mar-17 Aug-17 Jan-18 Jun-18 Nov-18 Apr-19 Sep-19 Feb-20 2018-07-02 2018-12-05 2019-05-21 2019-10-28 2020-04-07 Private sector credit Government (Net) Volume (RHS) CBR (LHS) Interbank rate (LHS) Source: Central Bank of Kenya Source: Central Bank of Kenya 19 Compared to a statutory requirement of 5 percent or less. 16 April 2020 | Edition No. 21 The State of Kenya’s Economy Box 4: Impact of the COVID-19 pandemic and Locust invasion on food security • The government is implementing a number of measures to mitigate the impact of the corona virus on food security. The GoK has constituted a County Government Co-ordination and Food Supply Working Group chaired by the Cabinet Secretary for Agriculture. The working groups’ objective are to: (i) monitor the availability of staple foods and take necessary actions to ensure adequate food supply for all Kenyans during the COVID crisis; and to (ii) identify food insecure households, map them to localities and develop strategies to mitigate risks and provide support to households. Key decisions taken thus far include: (a) allowing agriculture markets to remain open to the extent that they comply with social distancing, provision of water and soap for hand washing or sanitizers (b) exempting transportation of all food stuff from the curfew (c) suspension of the payment of cess on food stuff by all counties; and (d) allowing private millers to import up to 4 million tons of maize. • Further, the Ministry of Agriculture plans to (i) to create a “War Room” to monitor and track the food security situation in the country on a day to day basis in collaboration with county governments; and (ii) identify and build a database of 1 million food insecure households so as to be prepared for roll out of the support programs if needed. • In response to the locust attack, the Government of Kenya in collaboration with County Governments and other development partners has been undertaking control operations. The Ministry of Agriculture, Livestock and Fisheries has been working closely with the Food and Agricultural Organization of the UN (FAO) to take up aerial and ground control of the locusts in the affected regions. The actual activities carried out include: (a) establish 6 control bases in Wajir, Isiolo, Turkana, Marsabit, Masinga, and Garissa to coordinate control interventions in the affected areas; and (b) deploy spraying and surveillance aircrafts to the affected areas and ground control equipment like vehicle mounted sprayers, motorized and manual knapsack sprayers, hand-held sprayers to spray various control pesticides. They have also been trying to build the capacity of the county support staff and have deployed more than 500 National Youth Service (NYS) personnel for ground spraying. • The primary strategy has been to target breeding grounds and control hopper bands while they are still at the nymph stage before they can fly. Identification of the breeding grounds continues. At the request of the Government of Kenya, the World Bank triggered an emergency response component (US$13.8 million) under the ongoing Kenya Climate Smart Agriculture Project to provide resources for early control operations. In addition, a US$ 45 million credit has been submitted for approval by the WBG Board for locust response. Despite the above efforts, food security of nearly 3 million vulnerable households is at risk. Given current information and forecasts of locust movements, as well as impacts seen during historical upsurges/ plagues, future food security impacts will likely be significant for affected households. Source: World Bank staff access to international capital markets makes the Some of this gap is expected to be covered through an financing of the current account deficit considerably more IMF’s Rapid Credit Facility (RCF) equal to 100 percent of challenging. The capital and financial account are estimated the country’s quota (or US$ 750 million), leaving about at US$3.4 billion (or 3.2 percent of GDP) in 2020. This 0.7 percent of GDP to be covered through other sources. represents FDI equivalent to 0.6 percent of GDP, portfolio As of February 2020, Kenya’s official foreign reserves investment (of 0.4% of GDP), and other investments of amounted to US$8,754 million (or 5.3 months of import 2.5 percent of GDP (Figure 31). With a current account cover), up by US$180 million during the same period last deficit of 4.5 percent of GDP, this represents an external year (Figure 32). financing gap of about 1.3 percent of GDP for 2020. April 2020 | Edition No. 21 17 The State of Kenya’s Economy Figure 29: The current account balance has narrowed Figure 30: The nominal exchange rate has depreciated 10 110 5 100 0 Percent of GDP USD/KSh -4.9 -4.6 -4.5 -5.0 -5 -6.7 -6.2 90 -10 -15 2015 2016 2017 2018 2019 2020e Services trade Goods trade Income 80 Net Errors and Omissions Current Account Apr-15 Feb-16 Dec-16 Oct-17 Aug-18 Jun-19 Apr-20 Source: Central Bank of Kenya Source: Central Bank of Kenya Note: ”e” denotes estimate Figure 31: Official borrowing and private investment inflows Figure 32: Gross official foreign reserves are adequate financed the current account deficit 12 7 9000 6 Months of Import cover 8 8000 Reserves (US$ million) 5 Percent of GDP 7000 4 4 6000 5000 3 0 4000 2 3000 1 -4 2015 2016 2017 2018 2019 2020e 2000 0 Direct investment Portfolio investment Feb-15 Jul-15 Dec-15 May-16 Oct-16 Mar-17 Aug-17 Jan-18 Jun-18 Nov-18 Apr-19 Sep-19 Feb-19 Net errors and omissions Other investments Reserves (US$ million) Months of Import cover (Average of last 3 years) Source: Central Bank of Kenya Source: Central Bank of Kenya 18 April 2020 | Edition No. 21 Outlook and Risks 2. Outlook and Risks 2.1. Kenya’s growth outlook has been responses to COVID-19, including fiscal and monetary dampened by the COVID-19 pandemic policy stimulus, are expected to support resilience. 2.1.1. Kenya’s medium-term growth prospects are dampened by the COVID-19 pandemic and the 2.1.2. On the production side, the baseline attendant global uncertainty. The baseline adjusts for the assumes favorable weather conditions for agriculture negative impact of COVID-19 on Kenya’s growth outlook. performance, agro-processing, and electricity and Accordingly, growth is estimated to pick up sharply water supply. Drought years are associated with to 5.2 percent in 2021 and 5.7 percent in 2022, before a reduction in Kenya’s GDP growth by at least 0.6 reaching Kenya’s growth potential of 6.0 percent in 2023 percentage points.20 Agriculture is projected to expand (Table 4). The projections are based on the assumptions at an average rate of 4.0 percent in the medium term. A strong agricultural harvest is expected to improve food that the global economy is tipped for a recession with processing (manufacturing) activity, to increase exports significant negative spillovers on Kenya; but that investor and to strengthen household income and consumption confidence and corporate incomes will be restored soon growth. On average, industry is expected to grow at a after the COVID-19 pandemic is contained and that the rate of 4.1 percent over the medium term, supported weather remains normal and favorable for agricultural by increased access to credit, government’s focus on output. Nonetheless, the COVID-19 situation is evolving accelerating implementation of the Special Economic very rapidly and could get worse as the partial shutdown Zone (SEZ) program, and investment policy expected to contain the spread of COVID-19 could be prolonged. to attract foreign investors. In addition, adequate rainfall Post-crisis, economic activity would be supported by is expected in the base case to support a rebound in recovery in private sector investment and improved electricity and water supply, given that hydropower access to credit. Further, swift and well targeted policy accounts for over a third of total energy generation. Table 4: Medium term GDP growth projections 2017 2018 2019* 2020e_b 2020e_d 2021 f 2022 f 2023 f Real GDP growth, at constant market prices 4.8 6.3 5.4 1.5 -1.0 5.2 5.7 6.0 Private Consumption 7.4 6.5 5.0 1.5 -1.2 5.0 5.5 6.7 Government Consumption 3.9 5.6 4.9 1.2 1.2 3.5 2.9 5.4 Gross Fixed Capital Investment 6.6 -9.2 8.3 1.3 2.4 10.6 11.1 9.6 Exports, Goods and Services -6.2 3.9 -0.2 0.1 0.1 1.5 4.8 5.8 Imports, Goods and Services 8.6 2.5 -2.0 1.2 1.2 5.5 7.2 9.2 Real GDP growth, at constant factor prices 4.7 6.4 5.5 1.5 -1.0 5.2 5.7 6.0 Agriculture 1.6 6.0 3.6 2.8 2.8 3.2 4.2 4.5 Industry 3.9 5.5 4.6 1.1 0.0 2.2 4.7 5.3 Services 6.5 7.0 6.7 1.1 -3.0 7.1 6.6 6.4 Inflation (Consumer Price Index) 8.0 4.7 5.2 5.6 5.6 5.9 6.1 6.1 Current Account Balance (% of GDP) -6.2 -5.0 -4.6 -4.5 -4.7 -4.4 -4.3 -4.3 Net Foreign Direct Investment (% of GDP) 1.3 1.7 1.2 0.9 1.0 1.5 1.5 1.5 Fiscal Balance (% of GDP) (c) -7.4 -7.7 -8.0 -7.4 -7.6 -6.4 -5.4 -4.4 Debt (% of GDP) (c) 59.2 62.1 63.1 66.0 66.2 66.8 66.5 65.2 Primary Balance (% of GDP) (c) -3.6 -3.7 -3.7 -3.4 -3.6 -2.2 -1.3 -0.3 Memo: Real GDP (Ksh. billion) 8,165.8 8,892.1 9,740.4 9,886.5 9,642.9 10,400.6 13,362.3 15,141.3 International poverty rate ($1.9 in 2011 PPP)a,b 35.2 34.4 33.4 33.1 32.4 31.6 31.6 Source: World Bank Notes: *=preliminary e = estimate (_b=baseline; _d=downside scenario), f = forecast (a) Calculations based on 2005-IHBS and 2015-IHBS. Actual data: 2015. Nowcast: 2016-2018. Forecast are from 2019 to 2021. (b) Projection using annualized elasticity (2005-2015) (c) Fiscal years 2017 = FY 2017/18 20 World Bank, KEU 15. April 2020 | Edition No. 21 19 Outlook and Risks 2.1.3. Some of the services sub-sector is projected monetary policy to support growth. Inflationary to be severely impacted by ongoing measures to pressures are projected to remain muted in the medium restrict mobility, closure of schools and public spaces, term. Headline inflation is projected at 6.0 percent, which and broad social distancing to prevent widespread falls within the government target range of 5±2.5 percent. COVID-19. Specific sectors that could be hit hard by This is supported by a recovery in agricultural output measures taken to contain the spread of COVID-19 (low food prices) and low oil prices. The very low core and/or external demand shocks include hotels and inflation is consistent with an economy where demand restaurants (i.e. hospitality); the transportation sector, pressures are benign, and where the output gap remains especially Kenya Airways and other local airlines; the negative. This provides room for monetary policy easing sports and entertainment sector; and SMEs. Some of to support growth in the context of COVID-19, and over these could go permanently out of business. As a result, the medium term. growth in services in 2020 has been marked downward considerably to 1.1 percent before recovering to growth 2.1.7. The current account deficit is projected at 6.7 percent over the medium term. to widen over the medium term as the decline in exports of goods and services is expected to be 2.1.4. On the demand side, the baseline assumes larger relative to the decline in imports. Exports are that private investment will be weak, held back by expected to contract in line with projected economic dwindling investor confidence in the wake of COVID-19. slowdown in the main trading partners,22 while receipts Kenya’s private investment has remained weak in the last from tourism are expected to decrease sharply due to five years, partly attributable to interest rate caps that travel restrictions (to counter the spread of COVID-19) constrained access to credit, especially for the SMEs. and weaker growth prospects in advanced economies. A one percentage point increase in access to credit is The expansion in imports is projected to be marginal, associated with an increase in real GDP growth by about in line with the slowdown in Kenya’s real GDP growth 0.07-0.15 percentage points.21 The repeal of interest rate and the decrease in oil prices and disruptions to global caps should help increase access to credit (and relatedly supply chains due to COVID-19 pandemic. Nonetheless, investment) by SMEs on condition that the government the external current balance is adequately financed by makes progress in its planned fiscal consolidation. continued access to international financial markets (both Nonetheless, this is considerably difficult given pressing official and non-official debt) and portfolio inflows. The health related expenditure pressures and growing social prospects for re-engagement with the IMF (through a transfers to vulnerable groups for economic relief to help Stand-By Arrangement), provides additional balance of weather the COVID-19 pandemic. payment support over the medium term. 2.1.5. After pausing on fiscal consolidation in 2020 2.2. Risks to outlook due to the emergency, the authorities will resume it in 2021.The fiscal deficit is projected to decrease from 2.2.1. Risks are tilted to the downside. The greatest about 8.0 percent of GDP in FY2019/20 to about 7.4 risk to Kenya’s outlook is the extent of the impact of percent of GDP in FY2020/21 and thereafter decrease by the COVID-19 global pandemic. Kenya is only at the one percentage point every year to 4.4 percent of GDP beginning of a very uncertain path as the COVID-19 in FY2023/24 (Table 4). The primary balance is projected shock is expected to significantly reduce growth. A more to decline from -3.7 percent of GDP in FY2019/20 to severe or prolonged duration of the global pandemic or -0.3 percent of GDP in FY2023/24, reducing the growth its spread in Kenya could further dampen the outlook in public debt from a peak of 66.8 percent of GDP in and exert large strains on the balance sheets of the FY2021/22 to about 65.2 percent of GDP in FY2023/24. public sector, firms, and households. Other residual This fiscal consolidation path is much slower over the domestic risks include drought and a second-round of medium term relative to the pre-COVID scenario. locust invasion (in mid-year)-which if it materializes, could reduce agricultural output and rural incomes. 2.1.6. Inflationary expectations remain well A more severe than anticipated global recession or a anchored, giving room for more accommodative prolonged deterioration in financial conditions (e.g. 21 Alper, C. el al. (2019). 22 Top five export destinations for Kenya in 2018: Uganda, Pakistan, USA, United Kingdom, and the Netherlands. 20 April 2020 | Edition No. 21 Outlook and Risks due to COVID-19) could pose additional downside risks, to outcompete the private sector in access to credit, including a dry-up in external financing. adversely impacting private sector investment. Further, a significant COVID-19 outbreak, could require spending 2.2.2. A larger and unanticipated shock by the on health care and economic stimulus, representing a COVID-19 pandemic could reduce growth into a significant risk to fiscal consolidation. recession. The baseline accounts for ongoing social distancing measures taken to date to slow down the rate 2.2.4. Weather related shocks constitute a of infection (self-isolation, travel restrictions, the closure significant risk to Kenya’s growth over the medium of schools and entertainment spots, and the suspension term. The baseline assumes adequate rainfall, but on of public gatherings and conferences). Nonetheless the average Kenya gets one drought in every three years. magnitude of direct and indirect effects on production Furthermore, real GDP growth in years with poor rains across the economy, especially if Kenya moves into a is about 0.6 percentage points lower than in years with full shutdown, could result in a much more significant normal rain.23 Inadequate rains could dampen projected contraction in growth relative to the baseline. This growth over the medium term as Kenya’s agriculture is risk could be mitigated by GoK’s adoption of policies overwhelmingly rain-fed. Poor harvests could lead to customized to the structural features of its economy high food prices; increased food imports could widen (a large informal sector, high unemployment, and self- the current account deficit and weigh on macro stability. employment) and limited fiscal space. These factors Furthermore, since January 2020, Kenya has received an make full lockdown measures very costly for Kenya. influx of desert locusts to its semi-arid counties.24 While the initial invasion did not spread to Kenya’s grain basket 2.2.3. A repeated fiscal slippage could derail counties, a second round of outbreak could dampen efforts to contain public debt and further crowd out crop production. The ongoing national measures to private sector-led growth. The baseline assumes that combat the locusts’ spread are expected to mitigate this post-COVID-19, the government will follow through risk. Similarly, increased investment towards small-scale with its planned fiscal consolidation targets. However, irrigation under the Big 4 is expected to mitigate weather fiscal slippages present a significant risk to the outlook related shocks.25 because continued government borrowing is likely 23 World Bank (2016). KEU 14. 24 FAO (2020). http://www.fao.org/ag/locusts/en/info/info/index.html 25 The DPO contains measures to strengthen water resources management for irrigation in the context of devolution. April 2020 | Edition No. 21 21 Photo: © | World Bank 22 April 2020 | Edition No. 21 Reduced mobility of persons following containment measures to prevent the spread of COVID-19 April April 2020 2020 | Edition No. | Edition No. 21 21 23 23 Policy Options 3. Policy Options during the COVID-19 Pandemic 3.1. Strengthening the healthcare system and kits, preventive kits among others). The government has improving testing capacity already embarked on these aspects. In addition, ramping 3.1.1. COVID-19 health policies (self-quarantine, up testing and isolation, collecting the right data (through school closures, wearing masks, increasing cleanliness, testing) and conducting extensive statistical analysis can social distancing, and a nighttime curfew) have one help save many lives. Wearing of masks in public places, key objective: decrease the replication rate of the ensuring hand hygiene, and keeping social distancing disease. Given the existing limited capacity of Kenya’s are less costly from an economic point of view. This is the health care systems, these containment policies are key time for all Kenyans to join the fight against COVID-19 to buy authorities time to ramp-up investment in hospital by following government provided guidelines. In this infrastructure (increase number of intensive care beds, edition of KEU, a brief summary of health policies that put up temporary isolation facilities in counties, obtain could be adopted at reduced costs and low operational respiratory-support machines, procure medical testing complexity is provided. Recommendation Comments/Explanation Enhance active case • Align the testing algorithm with that of the case definition. Test a representative sample to gather finding, contact tracing reliable and unbiased information about the prevalence of COVID-19. and monitoring; • Undertake testing for all known contacts, self-isolate and quarantine as soon as possible. As a quarantine of contacts benchmark, China had up to 1,800 teams of five people each tracking every infected person, and isolation of cases everyone they got interacted with, then everybody those people interacted with and isolating the bunch.(1) • Encourage voluntary testing even for those persons who may be ineligible (asymptomatic cases) for testing using the case definition with access provided through private providers at a fee. • Encourage self-isolation and quarantine except for those who voluntarily prefer a government facility e.g. in cases with crowded households. This could be matched with passive monitoring of self-isolation and quarantine using existing technology such as a mobile phone apps e.g. which could provide a daily report.(2) The use of these technologies may need the implementation of provisions of the Data Protection Act. (1) https://medium.com/@tomaspueyo/coronavirus-act-today-or-people-will-die-f4d3d9cd99ca (2) https://www.tracetogether.gov.sg/ Hand hygiene, • Enhanced hand hygiene particularly in informal settlements. This may include re-examination of respiratory etiquette, water rationing schedules, utilization of alternative water delivery systems (e.g. water tankers), wearing of masks, and resourcing of water companies and boards to expand access to households. practice social • It is now mandatory to wear masks in public places. Provision of masks to all has been accredited distancing in reducing infections in China, Taiwan, Japan and other countries. It will also be helpful to provide guidance on appropriate use of masks (through mass media). Prepare for surge in • Provide health workers with conducive work environment including through provision of PPE, health care facility resting rooms, isolation facilities for those that elect to use them. Additional incentives should be needs, including provided including enhanced health insurance and life insurance. respiratory support and • Management of health workers in the designated COVID-19 health facilities should be personal protective coordinated centrally to enhance efficiency e.g. through pooling and distribution of limited equipment (PPE) numbers of specialized cadres. • Leverage on the procurement expertise and capacity of the World Bank and UN agencies. Consider pooling procurement from counties, national, and potentially at regional level to this end. • Improve the distribution and accountability for use of PPE and other equipment at facility level. This also necessitates the prioritization of facilities or counties for receipt of these supplies. • Improve rational use of PPE through changes in the case management guidelines that reflect guidance from WHO, CDC and other agencies e.g. when to use N95/FFP2/FFP3 masks or coveralls. • Activate local capacity for the manufacture of essential PPE such as surgical/medical masks, disposable gowns. • Urgently re-examine scenarios for oxygen requirements and initiate mitigation measures. 24 April 2020 | Edition No. 21 Policy Options 3.2. Protecting the poorest and the most mobile subscriptions in the country was 47.0 million, vulnerable while mobile penetration was at 90 percent. The near 3.2.1. Increasing support to poor and the most universal adoption of mobile phones reflects multiple vulnerable households is another crucial policy action. SIM ownership by individual consumers. An estimated 46 The hardship from the crisis would disproportionately percent of citizens had access to broadband connectivity befall the poorest and most vulnerable groups in Kenya. at the end of 2018,26 with mobile broadband being the They do not have resources to cope with the lockdowns predominant means of internet access. By providing a and quarantines needed to contain the spread of the convenient platform for sending and receiving money pandemic. Many depend on farming (for rural), self- and short-term credit, mobile money has become a employment and informal wage (for the urban). They key mechanism for poverty reduction in Kenya.27 With have limited coverage of pensions and unemployment social distancing, mobile money provides a means to insurance schemes, which makes most restrictive disincentives use of cash. The value of mobile money containment measures less effective. Protecting transfers has increased by 9.5 percent from Ksh.3,638 billion earnings and reaching them through transfers is in 2017 to Ksh.3,984 billion or 44.7 percent of annual GDP also considerably more challenging due to lack of a in 2018.28 Furthermore, mobile money wallets are used proper physical address system and lack of updated as transactional accounts rather than simply providing a household welfare registers. Kenya is at an advantage means of receiving cash. Thus, mobile payment platforms position, however, because it has social protection and have sufficient coverage, provide the ability to established social assistance programs that can be easily scaled one’s identity (by working closely with telecom companies) up and coverage extended. This program could be and potential beneficiaries already have an account. The supplemented by mobile payment channels. combination of available cash transfer schemes (for scale up) and sufficient coverage of mobile payments should be 3.2.2. Mobile penetration continues to rise in Kenya– maximized in protecting the poor and the most vulnerable providing access to digital communications, internet, households. The following programs have potential for and mobile payments (including MPESA, Airtel and scale-up and could help in protecting livelihoods. Orange money). As of March 2019, the number of active Recommendation Comments/Explanation Expand National Safety Net • NSNP scale-up mechanism can be used to support more poor households in the four Program (NSNP) to cover counties where poverty rate is historically high. Data of additional 272,000 households is more vulnerable households available for such a scale-up. • Given the vulnerability of the elderly and gaps in NSNP`s coverage of this group, more people aged 70 y.o. may be enrolled using civil registry data. Further, the eligibility age may be reduced to 65 y.o. to better capture age cohorts at risk of COVID-19. • Data from other government institutions about the poor and vulnerable populations may be used to complement the NSNP Single Registry and provide cash transfers to additional individuals / households. For instance, the Ministry of Education maintains a list of about 15,000 of poor and vulnerable students who mainly rely on the school meals to survive. In the absence of reliable • Rapid phone surveys could be run to identify the people who are at risk of slipping into social registry data, poverty (or already impoverished) because of COVID-19 emergency. The survey results alternative targeting could be plugged in the telecoms data to see if the latter can help predict vulnerability and approaches such as use of subsequently distinguish the eligible and non-eligible. data from mobile money • The GoK could also apply geographical targeting using small area poverty estimates service providers (telecoms) combined with the telecoms data for locating and validating the beneficiaries. After the and household survey data targeting is complete, mobile money services may be used to deliver the cash transfers. could better identify and target households most affected by the crisis; and deliver cash transfers through mobile money 26 Kenya Communications Authority. 27 Burgess and Pande, (2005). 28 Suri, Tavneet, and William Jack (2016). April 2020 | Edition No. 21 25 Policy Options 3.3. Supporting firms, protecting workers working capital financing, balance sheet and debt and jobs service relief. However, implementing similar solutions in 3.3.1. COVID-19 is damaging otherwise healthy firms developing countries like Kenya, with limited fiscal space through four channels: falling demand and revenues, and a high degree of informality such as Kenya may be reduced input supply, tightening of credit conditions, considerably challenging. Taking into account measures and increased uncertainty.29 Protecting jobs and firms the government has already implemented including tax to cope with the pandemic is extremely important. cuts (CIT, and turnover rates), expediting VAT refunds and Advanced countries have put forward enormous payment of pending bills, this section addresses a few stimulus packages to support firms and protect jobs, other measures that could be essential in supporting including employment guarantees, wage subsidies, firms and protecting workers to cope with the crisis. Recommendation Comments/Explanation Targeted liquidity • Liquidity support to MSMEs and the broader private sector through banks and other FIs to interventions to most implement measures such as moratoriums for personal and business loans. vulnerable firms and • Provision of lines of credit to basic MFIs and SACCOs to support MSME’s. businesses in order to forestall job losses • Targeted liquidity support to firms in sectors with strong links to the informal sector and MSMEs and firms in the as health, agriculture, tourism, transport, and food industry. Support should aim to protect employment/livelihoods. • Consider providing temporary support to some large and strategic companies on the basis that they provide significant amounts of jobs and/or their purchases are a lifeline for many SMEs. Measures to support • Increase of financial literacy awareness to move business transactions to digital platforms. operations of firms • Targeted support to enterprises to re-adjust their business models, look for new markets and reorganize their supply chains if needed, improve efficiency. Measures to support • Enhancement of de-risking instruments such as payment/credit guarantees for enterprises, financial sector lending especially MSMEs. to MSME’s • Liquidity support to reduce payment risks and supply risks (including trade finance facility) to MSME’s and large-scale businesses through commercial banks. https://worldbankgroup.sharepoint.com/sites/gge/Documents/COVID-19%20Response%20Documents/COVID-19%20and%20firms%20final.pdf 29 26 April 2020 | Edition No. 21 Policy Options 3.4. Monetary and fiscal policies 3.4.2. A fiscal stimulus package is very crucial in mitigating the impact of the pandemic on households 3.4.1. Monetary policy easing and exercising and firms. Nonetheless, its effectiveness relies on regulatory forbearance might be necessary as long important design features such as efficiency in targeting as conditions remain difficult. The core inflation rate is beneficiaries, affordability of the package, flexibility and low, and the output gap will be turning sharply negative. feasibility of the same (Box 3). To date, the government has There is room for monetary stimulus to support economic proposed several tax rate cuts and received parliament’s activity, and the CBK has begun to implement this, approval. The tax cuts include a reduction in turnover starting with the decision of the MPC to lower the CBK tax rate (from 3% to 1%); a cut in the corporation and rate to 7.25 percent on March 23. While the crisis is likely individual income tax rate (from 30% to 25%); a cut in the to lead to another round of increased non-performing VAT rate (from 16% to 14%), principally to cushion SMEs, loans, lower interest rates will stimulate activity generally, firms, and households from the crisis. The estimated helping ease the burden on businesses whose activities revenue loss in FY2019/20 is approximately Ksh.39.2 have been disrupted. It may also be appropriate to billion (or 0.38% of GDP). The slowdown in economic provide more liquidity support to banks that are likely activity due to the COVID-19 shock is contributing to to be affected by deterioration of credit quality or facing a slowdown in revenue collection, estimated at about funding pressure while at the same time facing urgent Ksh.84 billion (or 0.8% of GDP). Tax revenue from imports, demand for short-term credit from SMEs and other firms. profits, and consumption are all expected to decrease, The CBK could also support efforts enabling banks to with some tax bases likely to contract much faster than provide temporary relief to ease borrowers financing the slowdown in nominal GDP. Against this background, constraints (in 2020), helping support activity and avoid this KEU proposes a strategy to revisit approved tax cuts a sharp increase in NPLs. to restore revenue raising capacity once the crisis clears. Recommendation Comments/Explanation Make lowering of CIT • Reduce CIT or turnover tax rates, temporarily over a specified period, say 2-3 years. Having a sunset and turnover tax for clause on these cuts will help restore revenue raising capacity in the event the recovery is slow. businesses temporary to • Incentivize landlords to reduce rents for small businesses by providing tax credits up to 50% of enable SMEs and firms the rent reduction. have more financial resources to recover from the crisis Measures to shore up • Temporary lowering the VAT rate can shore up demand by boosting household disposable demand by boosting income. However, this should have a sunset clause to revert once activity returns to pre-crisis disposable incomes, level. including a cut in the • Alternatively ensure that temporary reduction in VAT rates could be limited to the worst affected VAT rate sectors such as travel, tourism, accommodation, and public events. • Finally, with the lower VAT rate, and the importance of achieving revenue neutrality, it would be important to be explicit that rationalization of VAT exemptions is part of the package. Nonetheless, additional revenue from the removal of these exemptions will only be realized in the medium term. Leverage part of the • Global oil prices have fallen by about 60 percent from their year-ago level and will most likely global fuel price windfall be lower post-crisis period. Kenya stands to benefit from lower global oil prices. Adjusting to boost government retail fuel taxes will direct some of the remaining windfall gains to Kenya of lower global revenue after the crisis energy prices to government revenues. Retail fuel prices would still fall, and Kenyan consumers would still benefit directly, just not by as much as if government allowed full pass-through of the global oil price crash. • Government revenues and cash balances would receive a welcome boost, thereby facilitating critical expenditure programs. In addition, the intervention would be progressive, because most of the gains from lower fuel prices are captured by higher-income Kenyans. Review and reprogram • A comprehensive reprograming of the development budget would release budgeted funds the development currently locked in stalled or otherwise low-priority or poor-quality projects. This would reduce budget budgeted financing needs at a time when the fiscal position will be under increased pressure due to the pandemic. Efforts could then be focused more strategically on high-impact projects, where bottlenecks could be addressed and existing committed funds from development partners unlocked. April 2020 | Edition No. 21 27 Policy Options Recommendation Comments/Explanation Monetary policy easing • With core inflation low and a widening negative output gap, the CBK could continue to provide and liquidity lifeline monetary stimulus through lower interest rates. support to firms • It could also provide liquidity to banks that are likely to be affected by deterioration of credit quality or facing funding pressure while at the same time facing urgent demand for short-term credit from SMEs and other firms. • The CBK could also support efforts enabling banks to provide temporary relief to ease borrowers financing constraints (in 2020), helping support activity and avoid a sharp increase in NPLs. 28 April 2020 | Edition No. 21 REFERENCES Alper, C. E., Clements, B., Hobdari, N., and Porcel, R. M. 2019. Do Interest Rate Controls Work? Evidence from Kenya. IMF Working Paper. WP/19/119. Auerbach, A., and Gale, W. (1999). https://www.brookings.edu/research/the-case-against-tax-cuts/ Baldwin, R and B Weder di Mauro (2020), a VoxEU.org eBook, CEPR Press. Burgess, R., and Pande, R. 2005. Do rural banks matter? Evidence from the Indian social banking experiment. American Economic Review, 95(3), 780-795. Chapman, B., Higgins, T., and J. Stiglitz (eds) (2014). Income Contingent Loans: Theory, Practice and Prospects. London: Palgrave Macmillan. FAO, (2020). Food and Agriculture Organization of the United Nations. Available at: http://www.fao.org/ag/locusts/en/ info/info/index.html . Fornaro, L and M Wolf (2020), “Covid-19 Coronavirus and Macroeconomic Policy: Some Analytical Notes”, manuscript. Ghani, E., and O’Connell, Stephen, D. 2014. Can service be a growth escalator in low-income countries? (English). Policy Research working paper; no. WPS 6971. Washington, DC: World Bank Group. Girouard, N., and André, C. (2005). “Measuring Cyclically-adjusted Budget Balances for OECD Countries,” OECD Economics Department Working Papers 434, OECD Publishing. Hatchet R., Mecher, C., Lipsitch, M. 2007. Public Health Interventions and Epidemic Intensity during the 1918 Influenza Pandemic. Proceedings of the National Academy of Sciences of the United States of America (PNAS). International Monetary Fund. 2020. World Economic Outlook: The Great Lockdown.” April 2020: https://www.imf.org/ en/Publications/WEO/Issues/2020/04/14/weo-april-2020. James, S. (2013). Tax and Non-Tax Incentives and Investments: Evidence and Policy Implications. Investment Climate Advisory Services of the World Bank Group. Kenya National Bureau of Statistics. (2018). Enterprise Survey 2018. Nairobi. Kenya National Bureau of Statistics. (2019). Economic Survey 2019. Nairobi. Kenya National Bureau of Statistics. (2018). Kenya Integrated Household Budget Survey (KIHBS) 2015/16. Nairobi. National Treasury. (2020). Medium Term Budget Policy Statement. February 2020. Nairobi. National Treasury. (2019). The Financial Management (Amendment) Act, 2019. Nairobi. Suri, T. and Jack, W. (2016). The long-run poverty and gender impacts of mobile money. Science Vol. 354 (6317), 1288- 1292. New York: American Association for the Advancement of Science. World Bank (2019). Improving Higher Education Performance in Kenya: a Policy Report. Washington DC: the World Bank. World Bank. (2016). “Kenya Economic Update. Beyond Resilience. Increasing Productivity of Public Investments.” Edition 14. World Bank. (2017). “Kenya Economic Update. Housing. Unavailable and Unaffordable”, Edition 15. World Bank Group. World Bank. 2019. “Kenya Economic Update. Securing Future Growth. Policies to Support Kenya’s Digital Transformation. Edition 20. World Bank, Kenya Enterprise survey 2018. Washington DC: The World Bank. World Bank. (2020). “Global Economic Prospects: Slow Growth, Policy Challenges”, January 2020 : https://www.worldbank. org/en/publication/global-economic-prospects. World Bank. (2020). “Africa’s Pulse: Assessing the Economic Impact Of Covid-19 and Policy Responses in Sub-Saharan Africa”, April 2020: https://openknowledge.worldbank.org/handle/10986/33541 April 2020 | Edition No. 21 29 ANNEX TABLES Annex Tables Table A1: Selected economic indicators 2016 2017 2018 2019 2020 2021 2022 2023 Act. Act. Act. Act. Est. Proj. Proj. Proj. Output and prices (Annual percentage change, unless otherwise indicated) Real GDP 5.9 4.8 6.3 5.4 1.5 5.2 5.7 6.0 Agriculture 4.7 1.6 6.0 3.6 2.8 3.2 4.2 4.5 Industry 5.9 3.9 5.5 4.7 1.1 2.2 4.7 5.3 Services 6.4 6.4 6.6 6.3 1.1 7.1 6.6 6.4 Private consumption 4.8 7.4 6.5 5.0 1.5 5.0 5.5 6.7 Government consumption 5.6 3.9 5.6 4.9 1.2 3.5 2.9 5.4 Gross fixed capital investment -9.2 6.6 -9.2 8.3 2.4 10.6 11.1 9.6 Exports, goods and services -2.2 -6.2 3.9 -0.2 0.1 1.5 4.8 5.8 Imports, good and services -3.4 8.6 2.5 -2.0 1.2 5.5 7.2 9.2 GDP deflator 5.6 10.6 2.8 10.0 5.9 6.2 6.6 6.9 CPI (period average) 6.3 8.0 4.7 5.2 5.6 5.9 6.1 6.2 Money and credit (Annual percentage change, unless otherwise indicated) Broad money (M3) 3.0 7.9 9.8 5.6 9.5 .. .. .. Credit to non-government sector 4.4 3.1 4.8 7.1 7.0 .. .. .. Policy rate (CBR) 10.0 10.0 9.0 8.9 .. .. .. .. NPLs (percent of total loans) 7.8 8.9 10.0 12.0 .. .. .. .. Central government (fiscal year i.e 2016 = 2016/17) (Percent of GDP, unless otherwise indicated) Total revenue & grants 18.6 18.2 18.1 18.1 17.6 17.3 17.1 17.2 Tax revenues 15.9 14.8 15.0 13.7 13.8 13.8 13.8 13.9 Non-tax revenues 2.4 3.1 2.9 4.1 3.4 3.1 3.0 3.0 Grants 0.3 0.3 0.2 0.3 0.4 0.4 0.3 0.3 Expenditure 27.5 25.2 25.7 26.1 24.9 23.8 22.6 21.6 Current 19.2 19.7 19.9 21.1 19.9 18.8 17.4 16.9 Capital 8.3 5.5 5.8 5.0 5.0 5.0 5.2 4.7 Primary balance -5.6 -3.6 -3.7 -3.7 -3.4 -2.2 -1.3 -0.3 Overall balance including grants -8.9 -7.4 -7.7 -8.0 -7.4 -6.4 -5.4 -4.4 Financing 8.9 7.4 7.7 8.0 7.4 6.4 5.4 4.4 Net domestic borrowing 4.1 3.3 3.3 5.0 3.0 2.4 2.0 0.6 Foreign financing 4.8 4.1 4.4 3.0 4.4 4.0 3.4 3.8 Public debt stock (fiscal year i.e 2015 = 2016/17) (Percent of GDP, unless otherwise indicated) Public gross nominal debt 57.5 59.2 62.1 63.1 66.0 66.8 66.5 65.2 External debt 29.9 30.1 32.3 32.8 32.4 31.3 30.0 28.8 Domestic debt 27.6 29.1 29.8 30.3 33.6 35.5 36.5 36.4 External sector (Percent of GDP, unless otherwise indicated) Exports (goods and services) 14.3 13.6 13.0 11.6 10.4 10.5 10.9 11.0 Imports (goods and services) -23.3 -22.8 -22.3 -20.4 -18.9 -18.8 -19.3 -19.5 Current account balance (including grants) -4.9 -6.2 -5.0 -4.6 -4.5 -4.4 -4.3 -4.3 Gross international reserves (in billions of US$) 9.60 8.75 9.20 9.35 8.30 7.75 8.40 9.20 In months of next year imports 5.0 5.4 5.7 5.8 4.8 4.0 4.0 4.0 Exchange rate (Kenyan shilling/US$) 101.5 103.4 101.3 102.0 .. .. .. .. Memo: GDP at current market prices (KES billion) 7,023 8,144 8,905 9,880 10,618 11,862 13,362 15,141 Source: World Bank, based on data from Kenya National Bureau of Statistics, National Treasury and Central Bank of Kenya 32 April 2020 | Edition No. 21 Annex Tables Table A2: GDP growth rates for Kenya and EAC (2015-2019) 2015 2016 2017 2018 2019 Kenya 5.7 5.9 4.8 6.3 5.4 Uganda 5.2 4.8 3.9 6.2 6.5 Tanzania 6.2 6.9 6.8 5.4 5.8 Rwanda 8.9 6.0 6.1 8.6 9.4 Burundi -3.9 -0.6 0.5 1.6 1.8 EAC 5.8 5.9 5.3 6.1 6.0 Source: World Bank Note: “e” denotes an estimate Table A3: Kenya annual GDP (2012-2019) GDP, GDP, 2009 GDP/capita, Years GDP growth current prices constant prices current prices Ksh Millions Ksh Millions US$ Percent 2012 4,261,370 3,444,339 1,137 4.6 2013 4,745,090 3,646,821 1,210 5.9 2014 5,402,647 3,842,186 1,316 5.4 2015 6,284,185 4,061,901 1,337 5.7 2016 7,022,963 4,300,699 1,411 5.9 2017 8,165,842 4,509,822 1,568 4.8 2018 8,892,111 4,792,174 1,711 6.3 2019 9,740,360 5,050,184 1,943 5.4 Source: Kenya National Bureau of Stastics and World Bank April 2020 | Edition No. 21 33 Annex Tables Table A4: Broad sector growth (y-o-y, Percent) Year Quarterly Agriculture Industry Services GDP Q1 7.8 6.4 4.6 5.7 Q2 4.4 7.0 5.6 5.6 2015 Q3 4.0 9.1 5.8 6.1 Q4 4.5 6.6 5.5 5.5 Q1 3.6 4.7 5.9 5.0 Q2 7.6 6.6 5.4 6.1 2016 Q3 2.1 6.2 5.8 5.2 Q4 5.2 6.2 8.1 7.2 Q1 4.0 4.5 6.1 5.2 Q2 0.5 4.0 6.3 4.4 2017 Q3 2.3 2.7 5.6 4.4 Q4 -1.3 4.3 7.2 5.1 Q1 6.7 4.5 6.5 6.2 Q2 5.9 5.0 6.3 6.0 2018 Q3 6.8 6.0 6.7 6.6 Q4 3.9 6.4 7.3 6.5 Q1 4.7 4.7 6.1 5.5 Q2 2.9 5.4 6.3 5.3 2019 Q3 2.4 4.7 6.3 5.2 Q4 4.0 3.8 6.4 5.5 Source: World Bank, based on data from Kenya National Bureau of Statistics Note: Agriculture = Agriculture, forestry and fishing Industry = Mining and quarrying + Manufacturing + Electricity and water supply + Construction Services = Whole sale and retail trade + Accomodation and restaurant + Transport and storage + Information and communication + Financial and insurance + Public administration + Proffessional administration and support services + Real estate +Education + Health + Other services + FISIM + Taxes on products 34 April 2020 | Edition No. 21 Annex Tables Table A5: Contribution by Broad sub-sectors (percentage points) Industry by sub sector contribution Service by sub sector contribution Agriculture Year Quarterly contribution Industries Accommo- Information Services Mining and Electricity and Transport and Financial and to GDP Manufacturing Construction dation and Real estate and communi- Other quarrying water supply storage insurance restaurant cation Q1 2.0 0.1 0.3 0.2 0.6 1.2 -0.1 0.5 0.5 0.3 0.6 0.6 2.3 Q2 1.1 0.1 0.3 0.3 0.6 1.3 0.0 0.6 0.5 0.2 0.5 1.0 2.9 2015 Q3 0.8 0.2 0.5 0.2 0.8 1.7 0.0 0.7 0.6 0.2 0.7 1.1 3.4 Q4 0.8 0.1 0.4 0.1 0.7 1.3 0.1 0.4 0.7 0.3 0.4 0.8 2.7 Q1 1.0 0.1 0.2 0.2 0.4 0.9 0.1 0.5 0.7 0.4 0.5 0.8 3.0 Q2 1.8 0.1 0.5 0.3 0.4 1.3 0.1 0.4 0.7 0.2 0.4 1.0 2.9 2016 Q3 0.4 0.1 0.4 0.2 0.5 1.2 0.1 0.3 0.7 0.3 0.4 1.3 3.1 Q4 1.0 0.2 0.2 0.1 0.7 1.2 0.2 0.6 0.7 0.5 0.4 1.4 3.8 Q1 1.1 0.1 0.2 0.2 0.4 0.8 0.3 0.5 0.5 0.5 0.2 0.9 2.9 Q2 0.1 0.0 0.0 0.2 0.5 0.8 0.1 0.5 0.5 0.3 0.2 1.2 2.9 2017 Q3 0.4 0.0 0.0 0.2 0.3 0.5 0.1 0.4 0.5 0.4 0.1 1.3 2.9 Q4 -0.2 0.0 0.0 0.1 0.7 0.8 0.1 0.7 0.5 0.5 0.1 1.8 3.6 Q1 1.7 0.0 0.3 0.2 0.3 0.8 0.2 0.4 0.4 0.5 0.2 1.2 3.0 Q2 1.4 0.0 0.4 0.2 0.3 1.0 0.1 0.4 0.4 0.4 0.2 1.4 3.0 2018 Q3 1.2 0.0 0.5 0.2 0.4 1.2 0.2 0.6 0.3 0.4 0.3 1.6 3.4 Q4 0.7 0.0 0.5 0.2 0.5 1.2 0.3 0.9 0.3 0.6 0.5 1.5 4.1 Q1 1.2 0.0 0.3 0.2 0.3 0.9 0.2 0.4 0.4 0.4 0.4 1.2 2.9 2019 Q2 0.7 0.0 0.4 0.2 0.4 1.0 0.1 0.5 0.5 0.3 0.3 1.5 3.2 Q3 0.4 0.0 0.3 0.2 0.4 0.9 0.1 0.6 0.5 0.3 0.5 1.4 3.4 Q4 0.7 0.0 0.2 0.2 0.4 0.7 0.2 0.7 0.4 0.5 0.4 1.3 3.5 Source: World Bank, based on data from Kenya National Bureau of Statistics Note: Other = Wholesale and retail trade + Public administration + Professional, administration and support services + Education + Health + Other services + FISIM April 2020 | Edition No. 21 35 36 Table A6: Quarterly growth rates (percent) Agriculture Industry Services GDP Year Quarter Four Four Four Four Quarter- Year-on- Quarter Quarter- Year-on- Quarter Quarter- Year-on- Quarter Quarter- Year-on- Quarter April 2020 | Edition No. 21 on-Quarter Year Moving on-Quarter Year Moving on-Quarter Year Moving on-Quarter Year Moving Average Average Average Average Q1 59.6 7.8 7.8 7.0 6.4 6.4 -3.4 4.6 4.6 10.3 5.7 5.7 Q2 -11.5 4.4 6.2 1.4 7.0 6.7 2.9 5.6 5.1 -1.2 5.6 5.7 2015 Q3 -21.1 4.0 5.6 -0.4 9.1 7.5 4.7 5.8 5.3 -2.5 6.1 5.8 Q4 -6.2 4.5 5.3 -1.4 6.6 7.3 1.2 5.5 5.4 -0.7 5.5 5.7 Q1 58.3 3.6 3.6 5.2 4.7 4.7 -3.0 5.9 5.9 9.8 5.0 5.0 Q2 -8.1 7.6 5.5 3.3 6.6 5.7 2.5 5.4 5.6 -0.2 6.1 5.6 2016 Q3 -25.1 2.1 4.5 -0.8 6.2 5.9 5.1 5.8 5.7 -3.4 5.2 5.4 Q4 -3.3 5.2 4.7 -1.4 6.2 5.9 3.4 8.1 6.3 1.2 7.2 5.9 Q1 56.4 4.0 4.0 3.5 4.5 4.5 -4.8 6.1 6.1 7.8 5.2 5.2 Q2 -11.2 0.5 2.3 2.9 4.0 4.3 2.7 6.3 6.2 -0.9 4.4 4.8 2017 Q3 -23.8 2.3 2.3 -2.1 2.7 3.8 4.5 5.6 6.0 -3.4 4.4 4.7 Q4 -6.8 -1.3 1.6 0.1 4.3 3.9 5.0 7.2 6.3 1.9 5.1 4.8 Q1 69.2 6.7 6.7 3.6 4.5 4.5 -5.4 6.5 6.5 8.9 6.2 6.2 Q2 -11.9 5.9 6.3 3.4 5.0 4.7 2.4 6.3 6.4 -1.2 6.0 6.1 2018 Q3 -23.2 6.8 6.5 -1.1 6.0 5.2 4.9 6.7 6.5 -2.8 6.6 6.2 Q4 -9.3 3.9 6.0 0.4 6.4 5.5 5.6 7.3 6.7 1.8 6.5 6.3 Q1 70.5 4.7 4.7 2.0 4.7 4.7 -6.4 6.1 6.1 7.8 5.5 5.5 Q2 -13.5 2.9 3.9 4.1 5.4 5.1 2.6 6.3 6.2 -1.3 5.3 5.4 2019 Q3 -23.5 2.4 3.5 -1.8 4.7 4.9 4.9 6.3 6.2 -2.9 5.2 5.3 Q4 -7.9 4.0 3.6 -0.4 3.8 4.7 5.7 6.4 6.3 2.1 5.5 5.4 Source: World Bank and Kenya National Bureau of Statistics Annex Tables Annex Tables Table A7: National Fiscal position Actual (percent of GDP) 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19* 2019/20** Revenue and Grants 19.7 19.5 19.1 19.2 18.2 18.1 20.6 Total Revenue 19.2 19.0 18.7 18.8 17.9 18.2 20.1 Tax revenue 18.1 17.7 17.2 17.1 16.0 16.0 17.8 Income tax 8.9 8.7 8.4 8.2 7.5 7.3 7.7 VAT 4.6 4.5 4.3 4.4 4.2 4.4 4.5 Import Duty 1.3 1.3 1.2 1.2 1.1 1.2 1.2 Excise Duty 2.0 2.0 2.1 2.2 2.0 2.1 2.5 Other Revenues 1.3 1.3 1.2 1.1 1.3 1.1 1.8 Railway Levy 0.0 0.0 0.0 0.0 0.2 0.2 0.3 Appropriation in Aid 1.1 1.3 1.5 1.7 1.6 1.9 2.0 Grants 0.5 0.5 0.4 0.4 0.3 0.2 0.4 Expenditure and Net Lending 25.6 28.1 26.9 28.1 25.2 26.0 27.7 Recurrent 14.8 15.4 15.4 15.7 15.8 16.4 17.0 Wages and salaries 5.5 5.1 4.6 4.4 4.6 4.5 4.7 Interest Payments 2.7 2.9 3.2 3.5 3.8 4.0 4.3 Other recurrent 6.6 7.3 7.7 7.7 7.5 7.9 8.1 Development and net lending 6.3 8.8 7.3 8.4 5.5 5.8 7.0 County allocation 3.8 3.9 4.1 4.0 3.8 3.9 3.6 Contingencies 0.0 0.1 0.1 0.1 0.0 0.0 0.0 Parliamentary Service 0.4 0.4 0.3 0.0 0.0 0.0 0.0 Judicial Service 0.3 0.2 0.2 0.0 0.0 0.0 0.0 Fiscal balance Deficit including grants (cash basis) -6.1 -8.1 -7.1 -9.1 -7.4 -7.7 -6.3 Financing 6.1 8.1 7.1 9.1 7.4 7.7 6.3 Foreign Financing 4.0 3.7 4.0 5.0 4.2 4.4 3.4 Domestic Financing 2.1 4.3 3.0 4.0 3.2 3.2 2.9 Total Public Debt (gross) 47.8 48.8 53.8 57.5 59.1 62.3 62.3 External Debt 22.4 24.4 26.8 30.0 30.0 32.4 32.4 Domestic Debt 25.3 24.4 27.1 27.6 29.1 29.9 29.9 Memo: GDP (Fiscal year current market prices, Ksh bn) Source: 2019 Budget Review and Outlook Paper (BROP) and Quarterly Budgetary Economic Review (Second Quarter, Financial Year 2019/2020), National Treasury Note: *indicate Preliminary results April 2020 | Edition No. 21 37 38 Table A8: Kenya’s Public and Publicly Guaranteed Debt, 2017 to Dec 2019 KShs. Millions Sep-17 Dec-17 Mar-18 Jun-19 Sep-18 Dec-18 Mar-19 Jun- 19* Sep- 19* Dec- 19* TOTAL PUBLIC DEBT (Net) 4,048,978 4,217,515 4,304,497 4,488,204 4,639,062 4,834,759 5,021,658 5,301,646 5,446,522 5,518,474 Lending (5,701) (5,701) (5,701) (5,701) (5,701) (5,701) (5,701) (5,701) (5,701) (5,701) Government Deposits (432,113) (350,924) (573,884) (545,075) (501,404) (432,049) (398,223) (501,728) -516,182 -524,752 Total Public Debt (Gross) 4,486,793 4,574,140 4,884,082.0 5,038,981.0 5,146,167.0 5,272,509.0 5,425,582.0 5,809,075 5,968,406 6,048,927 April 2020 | Edition No. 21 External Debt 2,310,198 2,353,795 2,512,431 2,560,199 2,605,333 2,723,734 2,721,598 3,023,138 3,111,767 3,106,823 Bilateral 742,064 782,588 800,912 816,119 812,545 894,046 916,572 996,059 1,024,092 1,037,538 Multilateral 842,814 841,847 836,766 820,966 877,730 874,680 846,587 914,394 1,001,817 1,023,821 Commercial Banks 708,231 712,274 858,062 906,389 898,349 938,151 941,763 1,095,753 1,068,664 1,028,691 Suppliers Credit 17,089 17,086 16,691 16,725 16,709 16,857 16,676 16,932 17,194 16,773 Domestic Debt 2,176,595 2,220,345 2,371,651 2,478,782 2,540,834 2,548,775 2,703,984 2,785,937 2,856,639 2,942,104 Central Bank 79,201 96,797 93,583 110,782 90,209 118,196 90,264 109,607 120,494 115,972 Commercial Banks 1,148,296 1,124,950 1,226,866 1,266,404 1,315,464 1,289,564 1,402,668 1,414,431 1,415,011 1,491,438 Non Banks & Nonresidents 949,098 998,598 1,051,202 1,101,596 1,135,161 1,141,015 1,211,052 1,261,899 1,321,134 1,334,694 (%) of Total public debt (gross) External Debt 51.5 51.5 51.4 50.8 50.6 51.7 50.2 52.0 52.1 51.4 Domestic Debt 48.5 48.5 48.6 49.2 49.4 48.3 49.8 48.0 47.9 48.6 % of External debt Bilateral 32.1 33.2 31.9 31.9 31.2 32.8 33.7 32.9 32.9 33.4 Multilateral 36.5 35.8 33.3 32.1 33.7 32.1 31.1 30.2 32.2 33.0 Commercial Banks 30.7 30.3 34.2 35.4 34.5 34.4 34.6 36.2 34.3 33.1 Suppliers Credit 0.7 0.7 0.7 0.7 0.6 0.6 0.6 0.6 0.6 0.5 % of Domestic debt Central Bank 3.6 4.4 3.9 4.5 3.6 4.6 3.3 3.9 4.2 3.9 Commercial Banks 52.8 50.7 51.7 51.1 51.8 50.6 51.9 50.8 49.5 50.7 Non Banks & Nonresidents 43.6 45.0 44.3 44.4 44.7 44.8 44.8 45.3 46.2 45.4 Source: National Treasury (Quarterly Economic Budgetary Review,February 2020) Note: *Provisional Annex Tables Annex Tables Table A9: 12-months cumulative balance of payments BPM6 Concept (US$ million) 2013 2014 2015 2016 2017 2018 2019 A. Current Account, n.i.e. (5,427) (6,442) (4,303) (3,387) (4,868) (4,349) (4,399) Merchandise A/C (10,220) (10,775) (8,388) (7,666) (10,201) (10,238) (10,301) Goods: exports f.o.b. 5,870 6,155 5,970 5,745 5,792 6,106 5,891 Goods: imports f.o.b. 16,089 16,929 14,358 13,411 15,994 16,344 16,192 Oil 3,838 4,026 2,500 2,087 2,728 3,386 Services 2,318 1,676 1,317 1,432 1,556 1,613 1,612 Services: credit 5,130 5,023 4,636 4,164 4,648 5,477 5,421 Services: debit 2,813 3,347 3,319 2,732 3,092 3,865 3,809 Income 2,475 2,657 2,769 2,847 3,778 4,277 4,290 B. Capital Account, n.i.e. 158 275 262 206 184 262 214 C. Financial Account, n.i.e. (5,204) (7,398) (3,914) (4,424) (5,288) (6,548) (6,120) Direct investment: net (920) (746) (382) (523) (1,019) (1,460) (1,066) Portfolio investment: net (273) (3,716) 156 350 789 (627) (1,328) Financial derivatives: net - - - 5 (0) 2 (5) Other investment: net (4,011) (2,936) (3,688) (4,255) (5,057) (4,464) (3,720) D. Net Errors and Omissions 434 221 (128) (1,112) (767) (1,418) (880) E. Overall Balance (369) (1,453) 255 (131) 163 (1,044) (1,055) F. Reserves and Related Items 369 1,453 (255) 131 (163) 1,044 1,055 Reserve assets 859 1,333 (361) 40 (241) 885 905.27 Credit and loans from the IMF 177 (119) (107) (91) (77) (160) -149.87 Exceptional financing 312 - - - - - 0 Gross Reserves (USD Million) 8,483 9,738 9,794 9,588 9,646 11,516 12,851 Official 6,560 7,895 7,534 7,573 7,332 8,231 9,116 Commercial Banks 1,923 1,843 2,259 2,015 2,314 3,286 3,735 Imports cover (36 months import) 4.5 5.1 4.8 5.0 5.0 5.4 5.5 Memo: Annual GDP at Current prices (USD Million) 54,978 59,735 61,497 68,763 78,998 87,055 97,426 Source: Central Bank of Kenya April 2020 | Edition No. 21 39 Annex Tables Table A10: Inflation Year Month Overall Inflation Food Inflation Energy Inflation Core Inflation January 7.0 12.5 0.7 3.3 February 9.2 16.7 3.0 3.3 March 10.3 18.8 3.3 3.3 April 11.5 21.0 3.7 3.5 May 11.7 21.5 3.5 3.6 June 9.2 15.8 3.4 3.5 2017 July 7.5 12.2 2.9 3.5 August 8.0 13.6 3.1 3.4 September 7.1 11.5 3.3 3.2 October 5.7 8.5 3.0 3.2 November 4.7 5.8 4.8 3.4 December 4.5 4.7 5.4 3.6 January 4.8 4.7 6.1 4.0 February 4.5 3.8 6.2 4.2 March 4.2 2.2 8.2 4.1 April 3.7 0.3 10.2 4.1 May 4.0 0.3 11.4 3.9 June 4.3 0.9 11.9 4.0 2018 July 4.4 0.5 12.4 4.1 August 4.0 1.2 14.2 4.3 September 5.7 0.5 17.4 4.5 October 5.5 0.5 16.5 4.7 November 5.6 1.7 14.3 4.4 December 5.7 2.5 13.8 4.0 January 4.7 1.6 12.1 3.4 February 4.1 1.1 11.4 3.1 March 4.4 2.8 8.8 3.1 April 6.6 8.2 7.5 3.1 May 5.5 6.3 6.7 3.0 June 5.7 7.0 6.3 2.9 2019 July 6.3 8.5 6.2 2.7 August 5.0 7.1 4.0 2.3 September 3.8 6.3 1.3 2.1 October 5.0 8.7 1.5 1.9 November 5.6 9.6 2.3 1.9 December 5.8 10.0 2.5 1.8 January 5.8 6.4 5.7 2.6 2020 February 6.4 9.6 3.2 1.9 March 6.1 10.6 3.7 4.0 Source: World Bank, based on data from Kenya National Bureau of Statistics 40 April 2020 | Edition No. 21 Table A11: Credit to Private Sector Growth (%) Total Private Building and Transport and Finance and Mining and Private house- Consumer Business Other Year Month sector annual Agriculture Manufacturing Trade Real estate construction communication insurance quarrying holds durables services activities growth rates Annex Tables January 3.9 -2.6 -6.8 13.4 -0.8 10.2 -0.6 10.3 -17.5 14.7 11.1 -13.0 -31.3 February 3.5 1.4 -8.6 10.1 8.3 8.0 -4.6 9.7 -25.5 15.6 11.1 -13.7 -29.2 March 3.0 -7.7 -7.8 11.6 0.6 9.6 -9.2 12.4 -34.0 13.3 10.1 -15.5 -23.5 April 2.2 -8.8 -6.8 8.0 -2.3 7.6 -11.9 13.2 -34.2 10.4 11.9 -15.1 -19.8 May 1.9 -12.6 -5.2 8.8 2.5 5.6 -2.8 11.8 -39.5 9.8 11.3 -21.8 -20.0 June 1.5 -12.3 -7.1 10.7 -0.7 3.2 -4.4 10.1 -37.8 10.9 7.5 -15.8 -25.0 2017 July 1.4 -11.6 -6.6 9.0 0.5 0.6 -8.5 11.8 -41.0 12.1 3.3 -10.8 -28.1 August 1.6 -7.6 3.3 4.3 -1.5 -2.3 5.4 9.7 -7.6 6.2 -1.6 -6.5 -27.4 September 1.7 -2.0 6.1 6.9 1.8 -4.9 -1.4 8.9 -0.8 1.9 -0.5 -6.4 -28.6 October 2.0 -1.1 10.2 11.5 4.0 -8.2 -1.3 10.0 9.2 2.9 0.1 -19.2 -35.0 November 2.7 -7.7 10.6 10.0 3.1 -8.0 1.5 9.3 -3.2 2.7 -0.4 -7.6 -23.1 December 2.4 -7.9 13.0 9.0 4.8 -7.2 -4.3 8.6 -5.5 -1.5 -1.6 -6.4 -7.5 January 1.9 -7.6 12.0 5.1 5.4 -10.9 -1.3 8.2 -6.7 -1.4 1.4 0.0 -10.6 February 2.2 -12.9 13.1 6.8 4.8 -13.9 4.9 8.4 -6.7 -2.7 2.3 -0.3 -2.2 March 2.1 -6.2 11.2 5.4 12.6 -18.4 11.6 4.5 -2.7 -0.7 4.7 -0.5 -6.3 April 2.9 -4.4 10.1 5.0 14.3 -17.8 10.1 3.6 -4.4 2.6 5.0 2.8 -2.2 May 3.9 -3.3 12.1 6.8 9.2 -14.9 2.6 3.7 -3.5 3.8 5.5 11.0 -7.5 June 4.3 -4.7 12.2 8.5 13.3 -12.7 3.8 3.8 -9.1 2.9 7.8 6.7 -7.9 2018 July 4.3 -6.5 11.5 6.5 13.5 -10.7 8.5 4.3 0.2 2.9 9.1 3.3 -5.8 August 4.3 -4.3 13.2 6.9 14.7 -11.0 3.5 0.9 -9.1 2.7 11.5 6.5 -4.6 September 3.8 -6.0 11.9 3.2 11.1 -9.1 6.6 1.7 -15.5 5.1 7.8 4.3 2.7 October 4.4 -5.6 14.8 4.0 7.1 -7.7 9.1 1.2 -11.6 5.1 7.6 12.1 -12.4 November 3.0 -0.1 10.6 3.2 8.9 -10.7 5.3 -1.1 -10.6 5.4 8.9 9.5 -23.4 December 2.4 -2.0 6.5 2.9 1.8 -9.4 17.5 -0.5 -10.7 6.8 11.0 8.0 -34.8 January 3.0 -0.2 6.5 6.6 1.4 -6.5 15.4 -2.6 -14.5 5.6 15.4 0.0 -27.2 February 3.4 -2.6 7.7 6.4 2.6 -0.7 13.1 -2.9 -13.4 6.6 16.1 0.3 -33.1 March 4.3 0.2 7.2 8.7 -7.0 5.7 10.2 -0.1 -11.4 8.0 13.9 -0.4 -31.7 April 4.9 2.5 7.9 8.4 -6.5 6.4 13.3 -0.7 -12.5 7.9 16.4 1.1 -29.6 May 4.4 2.7 6.5 7.6 -4.1 6.2 6.7 -0.5 -7.9 7.8 18.0 -1.2 -32.0 June 5.2 3.9 11.4 5.5 -6.3 5.8 4.7 1.0 -4.3 7.6 21.3 -3.2 -22.6 2019 July 6.1 7.6 10.3 8.0 -5.4 6.4 5.3 0.5 -13.5 7.1 23.6 1.6 -17.2 August 6.3 6.6 7.5 8.4 -6.0 5.8 8.2 2.4 -10.8 8.6 23.0 -0.1 -14.4 September 7.0 5.5 7.5 7.6 -5.3 5.0 14.5 2.2 -5.1 8.8 28.4 3.2 -13.6 October 6.6 -5.2 6.4 10.2 -5.5 4.8 15.1 0.4 0.1 5.3 28.6 -0.4 12.7 November 7.3 -6.1 7.5 8.8 -6.1 9.8 15.8 1.9 -3.2 6.1 25.9 -0.3 30.9 December 7.1 -2.4 9.2 8.9 1.6 8.1 0.4 1.5 -5.8 5.6 26.0 2.4 16.0 January 7.3 -4.8 12.7 6.0 4.0 9.9 -1.1 3.5 -9.4 5.6 21.4 1.5 24.4 2020 February April 2020 | Edition No. 21 7.7 0.2 10.4 9.5 -0.5 7.4 1.9 3.4 -14.6 5.9 20.6 2.4 33.4 Source: Central Bank of Kenya 41 Annex Tables Table A12: Mobile payments Number of Number of Value of Year Month Number of Agents customers transactions transactions (Millions) (Millions) (Billions) January 152,547 33.3 122.0 299.5 February 154,908 33.3 117.5 279.4 March 157,855 33.9 133.3 320.2 April 160,076 34.3 128.9 297.4 May 164,674 34.2 132.5 315.4 June 165,109 34.2 125.9 299.8 2017 July 169,480 34.6 128.1 308.9 August 167,353 35.3 120.6 286.3 September 167,775 35.5 128.5 300.9 October 170,389 36.0 134.2 299.0 November 176,986 36.4 131.7 299.0 December 182,472 37.4 139.9 332.6 January 188,029 37.8 136.7 323.0 February 192,117 38.4 132.3 300.9 March 196,002 39.3 147.5 337.1 April 201,795 40.3 142.1 313.0 May 202,387 41.7 141.0 329.0 June 197,286 42.6 137.4 317.7 2018 July 200,227 42.6 143.1 332.4 August 202,627 43.6 149.5 348.9 September 203,359 44.3 146.0 327.7 October 211,961 45.4 155.2 343.2 November 206,312 46.2 153.2 343.9 December 205,745 47.7 155.8 367.8 January 201,336 40.3 154.2 368.0 February 212,252 50.0 144.5 328.2 March 226,957 50.4 161.4 368.4 April 230,220 52.0 155.8 360.2 May 224,825 52.2 153.3 364.3 June 222,484 46.8 149.7 346.8 2019 July 222,087 53.9 153.0 366.4 August 222,479 54.8 151.8 368.5 September 224959 55.7 151.2 365.9 October 223176 56.3 156.1 366.9 November 222211 58.0 153.1 359.3 December 224108 58.4 155.0 382.9 January 231292 59.2 150.2 371.9 2020 February 235543 58.7 148.5 350.5 Source: Central Bank of Kenya 42 April 2020 | Edition No. 21 Annex Tables Table A13: Exchange rate Year Month USD UK Pound Euro January 103.7 128.0 110.2 February 103.6 129.5 130.4 March 102.9 126.9 109.9 April 103.3 130.4 110.7 May 103.3 133.5 114.8 June 103.5 132.5 116.2 2017 July 103.9 134.9 119.4 August 103.6 134.2 122.2 September 103.1 137.1 122.9 October 103.4 136.4 121.6 November 103.6 136.8 121.4 December 103.1 138.2 122.0 January 102.9 141.9 125.4 February 101.4 141.7 125.3 March 101.2 141.2 124.7 April 100.6 141.9 123.7 May 100.7 135.7 119.0 June 101.0 134.2 118.0 2018 July 100.7 132.6 117.5 August 100.6 129.7 116.2 September 100.8 131.7 117.7 October 101.1 131.6 116.2 November 102.4 132.1 116.4 December 102.3 129.7 116.4 January 101.6 130.8 116.0 February 100.2 130.3 113.8 March 100.4 132.3 113.5 April 101.1 131.8 113.6 May 101.2 130.1 113.2 June 101.7 128.8 114.7 2019 July 103.2 128.8 115.8 August 103.3 125.6 115.0 September 103.8 128.2 114.4 October 103.7 133.7 114.4 November 102.4 132.0 113.2 December 101.0 132.9 112.7 January 101.1 132.2 112.3 2020 February 100.8 130.8 109.9 March 103.7 128.5 114.7 Source: Central Bank of Kenya April 2020 | Edition No. 21 43 Annex Tables Table A14: Nairobi Securities Exchange (NSE 20 Share Index, Jan 1966=100, End - month) Year Month NSE 20 Share Index January 2,794 February 2,995 March 3,113 April 3,158 May 3,441 June 3,607 2017 July 3,798 August 4,027 September 3,751 October 3,730 November 3,805 December 3,712 January 3,737 February 3,751 March 3,845 April 3,705 May 3,353 June 3,286 2018 July 3,297 August 3,203 September 2,876 October 2,810 November 2,797 December 2,834 January 2,958 February 2,894 March 2,846 April 2,797 May 2,677 June 2,633 2019 July 2,628 August 2,468 September 2,432 October 2,643 November 2,619 December 2,654 January 2,600 2020 February 2,338 Source: Central Bank of Kenya 44 April 2020 | Edition No. 21 Annex Tables Table A15: Central Bank Rate and Treasury Bills Year Month Central Bank Rate 91-Treasury Bill 182-Treasury Bill 364-Treasury Bill January 10.0 8.6 10.5 11.0 February 10.0 8.6 10.5 10.9 March 10.0 8.6 10.5 10.9 April 10.0 8.8 10.5 10.9 May 10.0 8.7 10.4 10.9 June 10.0 8.4 10.3 10.9 2017 July 10.0 8.2 10.3 10.9 August 10.0 8.2 10.4 10.9 September 10.0 8.1 10.4 10.9 October 10.0 8.1 10.4 11.0 November 10.0 8.0 10.5 11.0 December 10.0 8.0 10.5 11.1 January 10.0 8.0 10.6 11.2 February 10.0 8.0 10.4 11.2 March 9.5 8.0 10.4 11.1 April 9.5 8.0 10.3 11.1 May 9.5 8.0 10.3 11.1 June 9.5 7.8 9.9 10.8 2018 July 9.0 7.7 9.3 10.3 August 9.0 7.6 9.0 10.0 September 9.0 7.6 8.8 9.8 October 9.0 7.6 8.5 9.6 November 9.0 7.4 8.3 9.5 December 9.0 7.3 8.4 9.7 January 9.0 7.6 8.9 10.0 February 9.0 7.0 8.6 9.6 March 9.0 7.1 8.3 9.4 April 9.0 7.4 8.1 9.4 May 9.0 7.2 7.9 9.3 June 9.0 6.9 7.6 9.2 2019 July 9.0 6.6 7.4 8.8 August 9.0 6.4 7.1 9.2 September 9.0 6.4 7.1 9.6 October 9.0 6.4 7.2 9.8 November 8.5 6.6 7.6 9.8 December 8.5 7.2 8.2 9.8 January 8.3 7.2 8.2 9.8 2020 February 8.3 7.3 8.2 9.9 March 7.3 7.3 8.1 9.2 Source: Central Bank of Kenya April 2020 | Edition No. 21 45 Annex Tables Table A16: Interest rates Short-term Long-term Year Month 91-Treasury Central Average Overall Interest Interbank Bill Bank Rate deposit rate Savings weighted Rate Spread lending rate January 7.7 8.6 10.0 7.2 6.1 13.7 6.5 February 6.4 8.6 10.0 7.7 6.8 13.7 6.0 March 4.5 8.6 10.0 7.1 5.9 13.6 6.5 April 5.3 8.8 10.0 7.0 5.7 13.6 6.6 May 4.9 8.7 10.0 7.1 5.9 13.7 6.6 June 4.0 8.4 10.0 7.2 5.6 13.7 6.5 2017 July 6.8 8.2 10.0 7.4 6.4 13.7 6.3 August 8.1 8.2 10.0 7.7 5.9 13.7 6.0 September 5.5 8.1 10.0 7.7 6.4 13.7 6.0 October 7.8 8.1 10.0 8.0 6.9 13.7 5.7 November 8.9 8.0 10.0 8.1 6.9 13.7 5.6 December 7.3 8.0 10.0 8.2 6.9 13.6 5.4 January 6.2 8.0 10.0 8.3 7.0 13.7 5.4 February 5.1 8.0 10.0 8.3 7.0 13.7 5.4 March 4.9 8.0 9.5 8.2 6.8 13.5 5.3 April 5.4 8.0 9.5 8.2 6.7 13.2 5.1 May 4.9 8.0 9.5 8.1 6.6 13.2 5.2 June 5.0 7.8 9.5 8.0 6.6 13.2 5.2 2018 July 4.8 7.7 9.0 8.0 6.5 13.1 5.1 August 6.6 7.6 9.0 7.8 6.5 12.8 5.0 September 4.5 7.6 9.0 7.8 6.3 12.7 4.9 October 3.5 7.6 9.0 7.6 5.7 12.6 5.0 November 4.1 7.4 9.0 7.4 5.4 12.6 5.1 December 8.0 7.3 9.0 7.4 5.1 12.5 5.1 January 3.3 7.6 9.0 7.3 5.1 12.5 5.2 February 2.5 7.0 9.0 7.3 5.2 12.5 5.2 March 3.7 7.1 9.0 7.2 5.1 12.5 5.3 April 4.2 7.4 9.0 7.2 4.7 12.5 5.3 May 5.6 7.2 9.0 7.2 4.7 12.5 5.3 June 3.0 6.9 9.0 7.2 4.8 12.5 5.3 2019 July 2.3 6.6 9.0 7.0 4.8 12.4 5.4 August 3.7 6.4 9.0 6.9 4.5 12.5 5.6 September 6.9 6.4 9.0 7.0 4.6 12.5 5.5 October 6.9 6.4 9.0 7.0 4.4 12.4 5.5 November 4.2 6.6 8.5 6.6 4.5 12.4 5.8 December 6.0 7.2 8.5 7.1 4.0 12.2 5.1 January 4.4 7.2 8.3 7.1 4.3 12.3 5.2 2020 February 4.3 7.3 8.3 March 4.4 7.3 7.3 Source: Central Bank of Kenya 46 April 2020 | Edition No. 21 Annex Tables Table A17: Money aggregate (Growth rate y-o-y) Year Growth rates (yoy) Money supply, M1 Money supply, M2 Money supply, M3 Reserve money January 21.9 5.3 5.2 5.1 February 23.7 4.5 5.4 2.9 March 22.1 5.7 6.4 3.2 April 23.6 6.3 7.1 9.0 May 21.8 6.2 6.7 5.2 June 22.5 5.4 6.0 2.9 2017 July 24.6 7.5 8.3 5.0 August 22.5 7.5 7.7 7.7 September 11.6 7.5 7.7 8.1 October 9.5 7.0 7.9 3.8 November 7.8 7.4 7.8 6.2 December 6.7 7.5 8.9 6.7 January 7.2 8.9 8.8 8.3 February 7.6 9.0 7.9 6.3 March 3.5 6.2 5.9 0.8 April 3.2 6.0 5.5 2.7 May 3.1 6.5 7.5 5.5 June 2.5 8.1 10.4 7.4 2018 July 3.9 8.4 10.1 2.1 August 3.0 7.2 9.1 6.6 September 0.6 6.2 8.5 6.0 October 3.8 7.6 9.1 7.4 November 2.4 6.5 8.4 9.0 December 6.6 8.0 10.1 12.1 January 7.4 8.4 10.5 5.4 February 5.6 7.3 10.3 4.7 March 11.7 10.8 12.5 9.1 April 6.8 8.7 10.7 8.3 May 6.7 8.3 8.7 12.1 June 10.5 9.8 9.2 2.5 2019 July 5.3 6.9 7.0 -1.2 August 6.0 6.1 6.3 -6.5 September 5.8 6.7 6.5 -9.4 October 3.0 6.3 7.5 -7.8 November 3.6 5.6 5.9 -6.1 December 3.2 5.4 5.6 -6.3 January 4.1 5.7 5.5 -3.6 2020 February 7.3 8.1 7.9 2.3 Source: Central Bank of Kenya and World Bank April 2020 | Edition No. 21 47 Annex Tables Table A18: Coffee production and exports Exports value Year Month Production MT Price Ksh/Kg Exports MT Ksh Million January 5,190 590 3,214 1,553 February 6,081 606 3,868 2,094 March 5,460 507 5,447 3,231 April 4,563 299 4,201 2,698 May 1,639 276 5,424 3,117 June - - 4,443 2,501 2017 July 762 420 3,598 1,971 August 2,319 443 2,649 1,311 September 2,465 457 3,134 1,516 October 1,619 409 2,335 1,121 November 2,310 419 3,196 1,566 December 1,320 453 1,955 775 January 5,112 527 2,509 1,286 February 5,832 577 2,834 1,612 March 4,913 478 3,936 2,237 April 4,194 305 4,550 2,822 May 4,620 217 5,573 3,209 June - - 4,649 2,664 2018 July 1,221 357 4,683 2,457 August 2,235 337 2,973 1,547 September 2,299 289 2,520 1,141 October 2,493 321 3,521 1,467 November 2,334 368 4,619 1,730 December 1,577 404 2,312 921 January 4,167 453 3,469 1,499 February 5,724 449 4,567 1,903 March 4,057 298 4,351 2,256 April 5,307 203 4,552 2,501 May 4,084 200 5,490 2,700 June 2,021 192 4,549 1,964 2019 July 672 197 5,115 1,713 August 1,647 217 3,932 1,462 September 1,522 233 3,145 1,113 October 2,541 260 3,986 1,390 November 1,117 332 3,664 1,176 December 771 2020 January 3,049 Source: Kenya National Bureau of Statistics 48 April 2020 | Edition No. 21 Annex Tables Table A19: Tea production and exports Exports value Year Month Production MT Price Ksh/Kg Exports MT Ksh Million January 32,991 316 46,434 14,072 February 22,605 317 33,898 10,880 March 34,498 300 33,662 10,693 April 31,458 297 32,091 9,991 May 38,822 304 39,329 12,354 June 40,538 325 42,370 13,485 2017 July 31,565 310 41,437 13,442 August 32,693 300 29,628 9,269 September 38,386 305 43,469 13,570 October 43,420 316 41,173 13,147 November 45,374 309 39,128 12,713 December 47,507 285 44,413 13,634 January 40,834 304 48,447 14,964 February 27,939 302 47,357 14,657 March 30,987 284 34,488 10,471 April 44,580 268 33,565 9,830 May 43,356 263 42,533 11,703 June 43,299 257 45,182 12,463 2018 July 35,278 251 45,242 12,226 August 37,433 241 38,023 9,919 September 42,531 243 40,268 10,479 October 49,284 244 43,894 11,327 November 45,649 242 44,108 11,015 December 51,830 236 38,681 9,781 January 48,386 234 48,623 11,831 February 31,445 216 41,027 9,638 March 26,462 214 42,457 9,910 April 26,131 228 36,884 8,631 May 37,759 242 36,994 9,293 June 42,425 219 29,355 7,154 2019 July 31,458 205 33,657 7,788 August 37,200 218 41,276 9,458 September 35,533 229 36,325 8,463 October 46,306 242 45,374 11,065 November 45,087 43,650 10,735 December 50,660 2020 January 53,636 Source: Kenya National Bureau of Statistics April 2020 | Edition No. 21 49 Annex Tables Table A20: Local Electricity Generation by Source Hydro KWh Geo-thermal Thermal KWh Wind KWh Total KWh Year Month Million KWh Million Million Million Million January 252 380 197 7.0 837 February 214 354 182 7.5 758 March 234 388 230 6.3 858 April 212 381 223 6.6 822 May 229 394 224 3.5 849 June 180 376 274 3.1 834 2017 July 193 402 271 1.5 867 August 251 415 159 3.3 829 September 239 403 213 3.6 859 October 217 416 224 4.3 861 November 305 411 153 7.1 877 December 250 436 184 7.3 879 January 223 430 242 3 900 February 193 387 249 7 837 March 248 448 202 4 903 April 317 428 139 3 887 May 386 447 83 2 918 June 401 430 82 1 914 2018 July 420 438 87 2 947 August 417 427 117 3 964 September 392 440 85 7 925 October 365 432 87 77 962 November 340 398 80 133 957 December 283 423 92 133 939 January 279 417 114 148 966 February 254 374 99 146 880 March 283 445 99 144 979 April 192 398 181 142 921 May 243 427 110 164 952 June 272 413 146 92 932 2019 July 269 440 133 125 975 August 251 425 132 151 968 September 234 454 105 153 953 October 268 494 70 137 977 November 299 482 62 114 965 December 361 464 62 46 940 Source: Kenya National Bureau of Statistics 50 April 2020 | Edition No. 21 Annex Tables Table A21: Soft drinks, Sugar, Galvanized sheets and Cement production Soft drinks litres Galvanized sheets Year Month Sugar MT Cement MT (thousands) MT January 50,409 53,071 26,230 565,440 February 43,353 49,094 22,994 491,307 March 50,623 42,238 22,574 570,522 April 46,399 26,230 23,225 535,061 May 40,742 15,246 23,081 482,762 June 45,875 16,113 15,424 513,313 2017 July 41,980 17,882 22,640 553,631 August 41,217 10,892 15,296 451,651 September 40,221 21,649 24,188 498,167 October 45,275 32,296 21,312 498,374 November 45,073 43,175 24,357 483,956 December 66,378 49,240 21,438 518,410 January 52,062 62,819 23,919 494,709 February 49,685 53,833 21,890 490,020 March 52,580 49,148 22,048 476,730 April 45,690 36,682 21,434 474,740 May 41,482 28,933 22,271 452,034 June 44,827 28,320 21,434 454,322 2018 July 43,725 30,105 23,252 465,575 August 48,795 35,646 22,630 473,861 September 45,956 37,652 23,509 460,546 October 46,546 45,324 23,906 470,524 November 50,201 38,768 22,877 460,967 December 54,021 38,268 21,266 461,922 January 52,062 53,060 20,105 485,178 February 50,806 46,139 22,739 470,146 March 51,419 45,418 26,290 507,037 April 54,515 34,521 23,198 503,722 May 50,671 35,257 22,480 486,903 June 45,054 28,544 24,663 481,681 2019 July 43,170 25,097 23,248 499,945 August 47,161 32,705 21,900 495,099 September 47,094 33,365 22,598 482,593 October 35,259 497,930 November 479,085 December 496,517 2020 January 530,404 Source: Kenya National Bureau of Statistics April 2020 | Edition No. 21 51 Annex Tables Table A22: Tourism arrivals Year Month JKIA MIA TOTAL January 67,876 11,482 79,358 February 62,659 7,809 70,468 March 65,095 8,406 73,501 April 63,842 4,128 67,970 May 65,711 2,678 68,389 June 75,049 5,072 80,121 2017 July 97,955 7,284 105,239 August 79,053 10,729 89,782 September 78,329 9,111 87,440 October 56,034 7,557 63,591 November 61,617 10,956 72,573 December 90,745 15,117 105,862 January 105,262 14,533 119,795 February 98,532 12,792 111,324 March 100,441 11,024 111,465 April 94,236 5,205 99,441 May 93,730 4,735 98,465 June 114,097 5,157 119,254 2018 July 141,763 9,025 150,788 August 145,231 9,589 154,820 September 114,539 9,916 124,455 October 115,597 9,343 124,940 November 103,229 8,391 111,620 December 115,856 18,403 134,259 January 113,050 15,740 128,790 February 106,198 12,761 118,959 March 93,571 20,159 113,730 April 103,522 4,769 108,291 May 98,596 3,591 102,187 June 122,122 6,650 128,772 2019 July 149,994 8,520 158,514 August 148,816 10,988 159,804 September 121,668 9,199 130,867 October 138,033 11,157 149,190 November 108,755 12,315 121,070 December 119,646 12,373 132,019 Source: Kenya National Bureau of Statistics Note: JKIA (Jomo Kenyatta International Airport, MIA (Moi International Airport) 52 April 2020 | Edition No. 21 Turbulent Times for Growth in Kenya Policy Options during the COVID-19 Pandemic The COVID-19 pandemic threatens both lives and livelihoods. Its impact on Kenya’s healthcare system, society, and the economy has been rapid and generated an unprecedented degree of uncertainty. Kenya faces an uncertain path as the COVID-19 shock, in addition to in icting tragic loss of life and direct human su ering from illness, has very large, negative economic impacts. Against this challenging backdrop, the twenty- rst edition of the World Bank’s Kenya Economic Update provides a detailed update of recent economic developments and the outlook, and discusses policy options to help confront the crisis. Stepping-up spending on the health sector to strengthen the capacity to cope with potential spikes in COVID-19 cases, and to atten the epidemic curve over the short-run through health policy containment measures, remains a top priority. The authorities have already embarked on doing this, with additional budget allocation to the health sector to expand its capacity, including by procuring additional intensive care unit beds and respiratory-support machines. The emphasis should remain on quickly and e ciently deploying the additional resources to strengthen the health system’s capacity to cope the spread of the virus. A COVID-19 facility credit from the World Bank was quickly approved for $50 million on April 2. These resources will help the Kenyan government acquire critical supplies such as personal protective equipment and testing kits. E orts are also under way to expand the necessary facilities to deal with a potential surge in cases, which might require isolation facilities in counties, additional intensive care units and respiratory-support machines. Measures to channel income and cash ow support to hard-hit households and rms are called for, given the scale of the economic shock, but such measures should be timely, targeted and temporary, especially since Kenya enters into this crisis with already stretched public nances. Economic policies should focus on reducing the immediate economic fallout and social pressures associated with social distancing and measures to contain the spread of COVID-19. Like all governments around the world, the Kenyan authorities face a di cult task in the face of huge uncertainties to minimize the loss of life and livelihoods in the face of the virus. Social distancing and other containment measures have helped to delay the spread of COVID-19, likely preventing unnecessary loss of life by preventing the healthcare system from being overwhelmed and buying time to strengthen it. Nonetheless, the containment measures are also costly to incomes and jobs by reducing social interaction, production and demand. This cost is aggravated by presence of a large informal sector in Kenya (accounting for at least 70% of employment), relatively high poverty rate, and signi cant unemployment rate among the youth. Government will need to continue to calibrate the response across the spectrum of containment options, and in doing so can be aided by maintaining a strong focus throughout on supporting the most poor and vulnerable households, including through cash transfers. World Bank Group Delta Center Join the conversation: Menengai Road, Upper Hill Facebook and Twitter P. O. Box 30577 – 00100 @Worldbankkenya Nairobi, Kenya #KenyaEconomicUpdate Telephone: +254 20 2936000 Fax: +254 20 2936382 http://www.worldbank.org/en/country/kenya Produced by Macroeconomics, Trade & Investment Global Practices