State to ring-fence Covid-19 funds in April mini-budget

Tuesday, March 31st, 2020 00:00 |
Hawkers sell second-hand clothes, bags and shoes at the Globe Roundabout in Nairobi, yesterday, ignoring the social distancing safety measure. Businesses have been suffering since the first coronavirus case was reported in Kenya, thereby affecting the country’s economy. Photo/PD/ALICE MBURU

Zachary Ochuodho and Lewis Njoka

No economist saw it coming and what started as a global travel and health scare has now hit every sector of the local economy, threatening to slash growth by more than 50 per cent.

In their forecasts, the National Treasury mandarins and Bretton Woods institutions were concerned of the weather and locust invasion as the main underlying issues.

Therefore, as Treasury prepares the second supplementary Budget, draining already stressed pockets to help the government deal with the impact of the virus is the only recourse.

“The supplementary Budget will take into consideration the health pandemic as well as its financial and economic impact,” said Treasury Principal Secretary Julius Muia.

Dwindling fortunes

Muia says the Budget  will be tabled at the National Assembly and Senate for consideration in April 2020.

The exchequer is expected to ring fence cash to target the coronavirus pandemic amid dwindling economic fortunes.

Central Bank of Kenya last week cut its 2020 economic growth forecast from 6.2 per cent to 3.4 per cent which is the lowest rate of growth since 2008, when a global financial crisis and the post-election violence plagued Kenya’s economy.

Analysts now admit that whereas these measures will negatively affect the economy in the short run, a full-blown outbreak could cripple the economy and lead to massive loss of life.

It will also take some time to go back to normalcy despite hope from the 2008 crisis.

“It is still too early to tell what the actual impact of the virus will be, but it is expected to reduce economic growth and lower consumer purchasing power,” said Stephen Ngugi, AIB Capital investment manager.

Ngugi says coronavirus shocks and actions taken to limit its spread are likely to affect the economy in ways people would never imagine.

“All sectors will be affected negatively except the telecommunication sector which is likely to benefit,” said Ngugi.

According to Ngugi, although it is still too early to tell the full extent of covid-19 shocks, the spillover effects from countries badly hit by the virus have started manifesting in the tourism, manufacturing and agricultural sectors.

Foreign exchange

“Agricultural production is likely to weather the storm. However, foreign exchange earnings are likely to decline due to stricter border control,” a study by AIB capital shows.

The cut flowers sub-sector is likely to experience adverse fallout. Already flower farms have sent employees’ home.

Manufacturing activity is subdued, as the effect of restricted movement of people and supply chain disruptions, characterise the sector.

The high dependence of the sector on intermediate goods from China has affected output.

Real estate and construction will experience a further decline. The construction industry’s slowdown will persist on account of the reduced movement of people and fewer project approvals from the government.

The real estate sector may also be affected by slower economic growth and lower demand.

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