Economic growth drops by 5.5pc amid Covid crisis

Thursday, May 6th, 2021 00:00 |
Treasury Cabinet secretary Ukur Yattani. Photo/File

The Covid-19 pandemic that hit the country last year has negatively affected all sectors of the economy, chopping 5.5 per cent off the economy in the second quarter of 2020.

A report by the National Treasury dubbed the Status of the Economy, shows that Covid-19 knocks saw Gross Domestic Product (GDP) growth decreased by 5.5 per cent in the second quarter and 1.1 per cent in the third quarter of 2020, compared to an expansion of 5.3 per cent in the second quarter and 5.8 per cent in the third quarter of 2019.

Government containment measures including closure of the airspace and borders, social distancing, cessation of movement and night curfew have adversely impacted all sectors of the economy.

These measures reduced demand and investment, increased unemployment and contributed to low or negative economic growth.

“The containment efforts involving quarantines, lockdowns and widespread restrictions on labour mobility and travel, helped to contain the virus and save lives but have resulted in declines in consumption, sharp cut backs in most service sector activities, increased risk aversion and elevated capital outflows especially emerging markets and developing economies.

Not all gloom

According to the report, the negative effects led to sharp and sudden decline in output, spending and employment on the second half of the financial years 2019/2020.

The report comes just days after President Uhuru Kenyatta lifted some of the Covid-19 containment measures he had imposed in five disease-infected counties of Nairobi, Kiambu, Machakos, Nakuru and Kajiado following increased cases of  Covid-19.

Kenya is currently grappling with a third wave of coronavirus infections with health facilities stretched to capacity as hospital admissions soar.

Although the report shows that five sectors including construction (16.2 per cent), mining and quarry (18.2 per cent), Information Communication Technology (7.3 per cent), real estate (5.3 per cent) and financial and insurance service (5.3 per cent), contributed to improved growth in the third quarter of 2020, the performance was curtailed by contraction in three sectors namely, accommodation and restaurants (-57 per cent), manufacturing (-3.2 per cent) and wholesale and retail (-2.5 per cent).

Visitor arrivals down 

With regards to individual sector performance, the report shows that the tourism sector was among the worst hit by the containment measures since the closure of airports in March last year led to a decline in the total visitor arrivals through Jomo Kenyatta International Airport (JKIA) and Moi International Airport by 71.6 per cent, from 1,544, 850 visitors in 2019 to 439,447 visitors in 2020.

“The decline in visitor arrivals was as a result of cessation of movement from source destinations as well as in the country, implementation of curfew hours and introduction of protocols on operation of hotels and restaurants,” notes the report.

In the manufacturing sector, performance decreased by 3.2 per cent compared to 3.9 per cent in 2019.

During the first nine months of last year, sugar production increased 62.2 per cent from 283,054 metric tonnes in 2019 to 460,160 metric tonnes, motor vehicle assembly increased by 14.5 per cent to 6,478 units between January and September last year, while production of soft drinks and galvanised sheets decreased by 14.1 per cent and 6.2 per cent, respectively, between January and September last year.

Cement production and consumption increased by 20.6 per cent to 6.6 million tonnes between January and November last year from 5.5 million metric tonnes in 2019, electricity generation increased to 11.475 million Kwh from 11,409 million Kwh in 2019, while the agricultural sector grew by 6.3 per cent in the third quarter of 2020 compared to 5 per cent during the same period last year.

“The improvement in the agricultural sector was attributed to a notable increase in tea production, cane deliveries and fruit exports,” says the report.

Public debt

With regards to fiscal developments, the report shows that budget execution in the first half of financial year 2020/21 was hampered by revenue shortfalls and rising expenditure pressures because of a weak business environment and the impact of tax reliefs implemented in April 2020 to support people and businesses from effects of Covid-19.

Revenue collection, the report shows, amounted to Sh1.079 trillion against a target of 1.192 trillion due to below target performance while the total expenditure by end of February last year amounted to Sh1.527 trillion against a target of Sh 1.76 trillion attributable to below target absorption of recurrent expenditure by Sh91.5 billion and development expenditure of Sh106.8 billion.

Overall public debt increased by Sh1.23 trillion to Sh7.3 trillion as at December 31, 2020, compared to Sh6 trillion at the end of December 2019, according to latest data.

The increase in public debt, the report shows, is attributed to external loan disbursements, exchange rate fluctuations and uptake of domestic debt during this period.

“The increase in debt is attributed to a rise in external disbursement made during the period coupled with fluctuations in exchange rate,” adds the report.

Remittance from the diaspora declined from $299.6 million (Sh32 billion) in December compared to $259.4 million (Sh28) in January same year.

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