WB backs economy for quick recovery after virus attack

New measures to contain the spread of the virus have seen subdued business activities around the country. [Jonah Onyango, Standard]

The World Bank has tipped the Kenyan economy to bounce back quickly from the adverse effects of the coronavirus pandemic.

However, the global lender in its bi-annual review of the Kenyan economy expects the outbreak to leave a major hole in the country’s total output this year, with the economy registering one of the slowest growths in recent times at 1.5 per cent.

In the worst-case scenario, World Bank expects the country’s economy to plunge into a recession for the first time since the early 1990s, registering a -1 per cent growth.

This, according to World bank’s chief economist Peter Chacha, is if the containment measures that have stifled human activities spill over to the second half of the year.

“Growth projections are highly uncertain this time,” said Chacha, noting that some sectors such as agriculture and public administration will, however, be “minimally affected.”

But these downsides will be neutralised by favourable weather conditions and improved investor confidence that will see the economy bounce back to grow at 5.6 per cent next year.

The World Bank’s review is not that different from that of its sister Bretton Wood institution, the International Monetary Fund, which has projected the economy to expand at one per cent this year.     

As a policy measure, the World Bank has advised the government to ensure that “vulnerable households have cash-on-hand, workers continue to receive salaries - even when temporarily laid-off.”

The government should also ensure that firms have enough cash flow to pay workers and suppliers and avoid bankruptcies as well as supporting the financial system to avoid a credit crunch.

President Jubilee administration has put in place several measures to ensure there is liquidity in the economy and a break-down in the social order by ramping up cash transfers to the elderly, vulnerable groups and people in the slums.

The government has also implemented various tax measures aimed at leaving households and businesses with more disposable income.

These measures will see value-added tax reduce from 16 per cent to 14 per cent. This is expected to have a knock-on effect on the prices of electricity, electronics and cable Tv subscriptions.

Employees earning Sh24,000 and below will also enjoy a waiver on pay-as-you-earn (PAYE), while the rest will see their PAYE decline by five percentage points to 25 per cent. Corporate income tax, which is charged on profits that firms earn, will also enjoy a tax relief of five percentage points from 30 per cent.