UPDATE 1-Kenya economy to grow at under 2.5% this year

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2 mins read

NAIROBI (Reuters) – Kenya’s economy is expected to grow by less than 2.5% this year, the finance minister said on Friday, as more evidence of the economic damage caused by the health crisis emerges.

Kenya’s Finance Minister Ukur Yatani speaks during a Reuters interview in his office, in Nairobi, Kenya May 15, 2020. REUTERS/Jackson Njehia

The projected growth rate will be a slide from 5.4% last year, Ukur Yatani told a virtual event to launch budget making for the 2021/22 financial year, battered by loss of jobs, a steep contraction in tourism and a drop in government revenues.

“The COVID-19 pandemic is likely to cause a major economic shock,” the minister said.

Thousands of workers have lost their jobs and some employees have had their hours reduced.

The tourism sector, which many households rely on for their livelihoods, is expected to contract by 18.7% this year and 9.1% next year, before it starts to grow slightly in 2022, the Treasury said.

The government’s revenue from taxes dropped by 10% in the year to August, or 120 billion shillings ($1.11 billion), the finance ministry said, partly due to tax cuts announced in April to support consumer demand in the face of pandemic.

The coronavirus crisis has also upended the government’s budget deficit reduction plans.

In the 2021/22 (July-June) financial year, the finance ministry said it will target a fiscal deficit of 7.3% of GDP, slightly down from this fiscal year’s deficit of 8.4%.

Pre-pandemic forecasts had put the fiscal deficit for this financial year at 4.9% of GDP, narrowing to 3.9% in 2021/22.

Kanini Kega, the chairman of parliament’s budget committee, warned officials against taking the budget plans lightly, normally in the form of additional requests for cash during a given financial year, after the budget has been approved.

“The huge variations and lack of predictability has eroded the credibility of our budget,” he said.

($1 = 108.4000 Kenyan shillings)

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