November 2020 | Edition No. 22 Policy Options Global Global Pandemic Policy Options Pandemic COVID-19 COVID-19 Lives Lives Livelihoods Livelihoods GDP GDP Growth Growth Healthcare Healthcare System System Poverty Reduction Poverty Reduction Navigating the Pandemic Policy Options during the COVID-19 Pandemic Navigating the 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. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank Group concerning the legal status of any territory or the endorsement or acceptance of such boundaries. 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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. Global and regional economic growth has contracted sharply...................................................................................................................................... 2 1.2. Kenya’s economy has been hit hard by COVID-19, but swift policy responses and a gradual re-opening have supported some subsequent recovery ................................................................................................................................................................................................................... 3 1.3. The recovery in aggregate demand faces continued headwinds from the pandemic................................................................................... 7 1.4. Kenya’s fiscal consolidation has paused due to the pandemic, and public debt is rising rapidly.............................................................. 11 1.5. Monetary policy has been accommodative to mitigate the impact of the pandemic.................................................................................... 16 1.6. Kenya’s external position has been supported by import compression and resilient remittances.......................................................... 19 2. Outlook and Risks................................................................................................................................................................................................................ 19 2.1. The economic outlook remains highly uncertain due to the pandemic ................................................................................................................ 21 2.2. Risks to the outlook..................................................................................................................................................................................................................................... 23 3. Policy Discussion................................................................................................................................................................................................................ 24 3.1. Strengthen the capacity of Kenya’s healthcare system by advancing critical reforms and promoting access to healthcare... 25 3.2. Continue to assist the most vulnerable households, and help those who have lost jobs seek new employment by scaling and sustaining available social protection programs............................................................................................................................................................. 26 3.3. Supporting firms’ liquidity, reconnecting them to markets, and creating jobs..................................................................................................... 27 3.4. An accommodative monetary policy stance and supportive fiscal interventions.............................................................................................. 28 SPECIAL FOCUS 4. The Socio-Economic Impact of the COVID-19 Pandemic......................................................................................................................................32 4.1. Introduction..................................................................................................................................................................................................................................................... 32 4.2. Impact on the private sector ................................................................................................................................................................................................................ 33 4.3. Socioeconomic impacts on households....................................................................................................................................................................................... 37 4.4. Policy recommendations......................................................................................................................................................................................................................... 46 REFERENCES ....................................................................................................................................................................................................................................................................... 53 ANNEX TABLES ................................................................................................................................................................................................................................................................. 55 LIST OF FIGURES Figure 1: COVID-19 confirmed deaths (cumulative total) and new cases (7-day moving average) in Kenya......................................................... 2 Figure 2: Global growth has fallen sharply......................................................................................................................................................................................................... 2 Figure 3: The pandemic has slowed EAC growth momentum............................................................................................................................................................. 3 Figure 4: Services and taxes contracted sharply in Q2 (contributions to change in real GDP y/y, percentage points).................................... 3 Figure 5: The services contraction was led by the education subsector (contributions to change in real GDP y/y, percentage points) ... 4 Figure 6: The COVID-19 pandemic took a heavy toll on the Kenyan economy in H1 2020 .............................................................................................. 6 Figure 7: Activity in agriculture remains strong.............................................................................................................................................................................................. 6 Figure 8: Broad-based slowdown in industrial activity.............................................................................................................................................................................. 6 Figure 9: PMI shows a sequential expansion in Q3 2020.......................................................................................................................................................................... 6 Figure 10: Electricity sales have rebounded from their April low, but remain below-trend.......................................................................................... 6 Figure 11: Activity in non-food manufacturing troughed in May.................................................................................................................................................. 6 Figure 12: Unemployment rate (18-64 years, %)....................................................................................................................................................................................... 7 Figure 13: Number of formal employees in the private sector has decreased relative to March 2020................................................................... 7 Figure 14: Mobility data troughed in April and subsequently have been trending upwards....................................................................................... 10 Figure 15: Private consumption accounts for most growth, but is expected to have been subdued in 2020.................................................. 11 Figure 16: Net exports are expected to have contributed slightly to growth in 2020....................................................................................................... 11 Figure 17: Actual revenue vs target (% of GDP) ........................................................................................................................................................................................ 12 Figure 18: The fiscal balance deteriorated in FY2019/20..................................................................................................................................................................... 12 Figure 19: Government expenditure has leveled off as a share of GDP...................................................................................................................................... 14 Figure 20: Expenditure allocations to health and social protection have increased ......................................................................................................... 14 Figure 21: The public debt burden is increasing........................................................................................................................................................................................ 15 Figure 22: The increase in debt is driven by widening primary deficit and interest payments ................................................................................. 15 Figure 23: There has been significant decline in headline inflation rate during 2020...................................................................................................... 16 Figure 24: Low food and non-food inflation has resulted in low overall inflation (percent y/y)................................................................................. 16 Figure 25: Headline inflation is moderate across the EAC partner states.................................................................................................................................. 17 Figure 26: Private sector credit growth remains modest, while credit to government has accelerated .............................................................. 17 Figure 27: Interbank rate and activity volume reflects ample liquidity....................................................................................................................................... 17 Figure 28: High NPLs constrain lending conditions................................................................................................................................................................................ 18 Figure 29: The flight to safety has led to net foreign outflows (NSE) and a reduction of the NSE 20 Share index........................................... 18 Figure 30: The current account deficit has compressed ..................................................................................................................................................................... 19 Figure 31: Remittances remain steady, helping to limit the current account deficit......................................................................................................... 19 Figure 32: Goods imports declined at faster pace than exports..................................................................................................................................................... 19 Figure 33: All categories of imports declined over the review period......................................................................................................................................... 19 Figure 34: Official borrowing helped finance the current deficit as portfolio flows contracted................................................................................. 20 Figure 35: Official foreign reserves have been supported by official borrowing inflows................................................................................................ 20 Figure 36: Most currencies in Africa and the Middle East, including the Shilling, have depreciated vs. the US Dollar in 2020 (% depreciation through 13 Nov) .............................................................................................................................................................................................. 20 Figure 37: The significant real effective appreciation of the Shilling in recent years has only partly been reversed by developments in 2020....................................................................................................................................................................................................................... 20 Figure 38: Recent revisions to real GDP growth projections (percent change in real GDP y/y) ................................................................................. 21 Figure 39: The crisis is expected to have a large impact on real average incomes ............................................................................................................ 21 Figure 40: Firm operating status ......................................................................................................................................................................................................................... 33 Figure 41: Change in sales....................................................................................................................................................................................................................................... 34 Figure 42: Margin of adjustment in employment.................................................................................................................................................................................... 34 Figure 43: Share of firms affected by different transmission channels........................................................................................................................................ 35 Figure 44: Share of firms affected by different transmission channels........................................................................................................................................ 35 Figure 45: Business responses to the COVID-19 shock......................................................................................................................................................................... 36 Figure 46: Expectations and uncertainty about sales and employment................................................................................................................................... 36 Figure 47: Share of firms that received any assistance and type of assistance received.................................................................................................. 36 Figure 48: Self-reported most needed public policies to support businesses....................................................................................................................... 37 Figure 49: Unemployment rate (18-64 years).............................................................................................................................................................................................. 38 Figure 50: Hours worked for wage workers.................................................................................................................................................................................................. 38 Figure 51: Changes in wage earnings.............................................................................................................................................................................................................. 38 Figure 52: Change in hours worked, by gender........................................................................................................................................................................................ 38 Figure 53: Change in earnings, by gender.................................................................................................................................................................................................... 38 Figure 54: Operating status of businesses..................................................................................................................................................................................................... 39 Figure 55: Remittance value in 2-week period for February and May/June............................................................................................................................ 39 Figure 56: Households that received assistance by change in remittances ............................................................................................................................ 39 Figure 57: Strategies employed to cope with the impact of the crisis (multiple answers possible)......................................................................... 40 Figure 58: Food shortages. In the past seven days, how many days have................................................................................................................................. 41 Figure 59: Worried about not having enough food to eat in the past 30 days....................................................................................................................... 41 Figure 60: Children have gone to bed hungry in the past 7 days................................................................................................................................................... 41 Figure 61: Channels for reaching teachers (multiple answers possible)...................................................................................................................................... 41 Figure 62: Learning activities (multiple answers possible)................................................................................................................................................................... 42 Figure 63: Ability to go to routine health check-ups as frequently as before March........................................................................................................... 42 Figure 64: Subjective well-being. In the past seven days, how many days have you......................................................................................................... 43 Figure 65: Sources of information on COVID-19 (multiple answers possible)......................................................................................................................... 43 Figure 66: Trust in the government ................................................................................................................................................................................................................... 43 Figure 67: Refugee employment rates before and after COVID-19................................................................................................................................................ 44 Figure 68: Refugee who skipped meals during the past 7 days....................................................................................................................................................... 45 LIST OF TABLES Table 1: Services contribution to GDP growth (in constant 2009 prices) in H1 of 2020............................................................................................... 4 Table 2: Preliminary fiscal out-turn (% of GDP) for FY19/20 and FY20/21Q1....................................................................................................................... 15 Table 3: The share of multilateral debt in total PPG external debt has increased ........................................................................................................... 16 Table 4: Financial soundness indicators (FSI) show a decrease in profitability................................................................................................................... 17 Table 5: Recent revisions to real GDP growth projections (percent change in real GDP y/y)................................................................................... 22 Table 6: Medium term growth projections............................................................................................................................................................................................... 22 LIST OF BOXES Box 1: Treatment in the national accounts of education sector output ........................................................................................................................... 5 Box 2: Sectoral employment and salary payouts during the height of COVID-19 ...................................................................................................... 8 Box 3: Kenya’s new credit guarantee scheme...................................................................................................................................................................................... 9 Box 4: GoK’s response to COVID-19 pandemic................................................................................................................................................................................... 13 Box 5: Youth-led micro-enterprise rapid response phone survey.......................................................................................................................................... 40 Box 6: Well-targeted cash transfers can be a powerful tool to mitigate shocks............................................................................................................ 52 ABBREVIATIONS ASAL Arid and Semi-Arid Lands BPS Basis Points COV-BPS COVID-19 Business Pulse Survey CGS Credit Guarantee Scheme CBK Central Bank of Kenya CRR Cash Reserve Ratio EAC East African Community e-GP Electronic Government Procurement ERS Post COVID-19 Economic Recovery Strategy FSI Financial soundness indicators FDI Foreign Direct Investment GVC Global Value Chains GoK Government of Kenya GDP Gross Domestic Product H1 First half of the year H2 Second half of the year ICT Information and Communication IMF International Monetary Fund KNBS Kenya National Bureau of Statistics KRA Kenya Revenue Authority MSMEs Micro, Small and Medium Enterprises MSF MSME Stabilization Fund NBCC National Business Compact on COVID19 NHIF National Health Insurance Fund NPLs Non-Performing Loans NSE Nairobi Securities Exchange NGO Non-Governmental Organizations PAYE Pay as you earn PPIP Public Procurement Information Portal PPADA Public Procurement and Disposal Act PMI Purchasing Managers’ Index PFM Public Financial Management RRPS Rapid Response Phone Surveys SOEs State Owned Enterprises SSA Sub-Saharan Africa SACCOs Savings and Credit Co-Operative Society UNHCR United Nations High Commissioner for Refugees UHC Universal Health Coverage VAT Value Added Tax November 2020 | Edition No. 22 i FOREWORD T he COVID-19 pandemic continues to unfold globally and in Kenya, threatening both lives and livelihoods. The pandemic is inflicting tragic loss of life and direct human suffering from illness, in addition to eroding progress in poverty reduction (with an additional 2 million new poor) through serious impacts on incomes and jobs. Against this challenging backdrop, the twenty-second edition of the World Bank’s Kenya Economic Update (KEU 22) provides a detailed update of recent economic developments and the outlook and discusses policy options as Kenya continues to navigate through the pandemic. There are three key policy messages. First, authorities should continue to allocate sufficient resources to the health sector to combat the pandemic, continue with mass testing, support self-quarantine, social distancing, and protect the most vulnerable groups. There is a need also to ensure continued access to safe healthcare for non-COVID-19 related health concerns, by assigning adequate resources to these areas (including non-communicable diseases). Given fiscal constraints, this will require redirecting expenditures to the highest priority areas, whilst maintaining a focus on raising the efficiency of spending and ensuring the transparent use of funds. As the crisis abates, Kenya will need to enhance its existing institutional setup for monitoring and responding to future communicable disease outbreaks, and further the still-critical “Big 4” agenda for medium-term inclusive growth, including realizing the government’s vision of sustainably providing universal healthcare. Second, supporting firms’ liquidity and digital capabilities remains important to safeguard healthy firms from permanent closure. Furthermore, following the job- and income-losses precipitated by the crisis, support is needed for the “new poor” who have lost livelihoods. This could be achieved through a horizontal scale-up of social protection programs, appropriately targeted, timely, and temporary while the crisis persists. It is critical to ensure continued support to vulnerable households, while safeguarding human capital through expanded access to digital technology, combined with better access to information to mitigate usage of negative coping strategies (i.e. asset liquidation) and combat food insecurity while offsetting the increase in poverty. Third, and critically, authorities should pursue an appropriate and balanced fiscal consolidation over the medium term to reduce mounting debt vulnerabilities and safeguard macroeconomic stability. In the near term, tax and spending measures should continue to support the healthcare system and protect the most vulnerable households. Creating fiscal space to fund these critical interventions could be supported through potential quick wins in areas such as: (i) streamlining of the large ongoing public investment portfolio to create space for new and impactful projects that could help create jobs; (ii) cutting wasteful expenditures and increasing the efficiency of spending (including by leveraging digitalization to cut operational costs); and (iii) taking advantage of debt service relief to free up liquidity that would otherwise be absorbed by debt service. Keith E. Hansen Country Director for Kenya, Rwanda, Somalia, and Uganda World Bank ii November 2020 | Edition No. 22 ACKNOWLEDGEMENTS T he 22nd edition of the Kenya Economic Update was prepared by a team led by Alex Sienaert and Peter W Chacha. The State of Kenya’s Economy was written by Alex Sienaert, Angélique Umutesi, Celina Mutie, and Peter W Chacha (all in the Macroeconomics, Trade & Investment Practice). The preparation of the Special focus topic was led by Utz Pape (Poverty and Equity Practice) with contributions from Marcio Cruz, Verena Wiedemann, Alastair Haynes, Antonia Delius, and Caleb Gitau. The policy discussions were prepared by Peter W Chacha, Alex Sienaert, and Utz Pape. The report benefited from excellent peer reviews from David Elmaleh (Senior Economist, EAWM2) and Arden Finn (Economist, EAEPV). The team received overall guidance from Vivek Suri (Practice Manager, EA1M1), Pierella Paci (Practice Manager, EAEPV), Philip Schuler (Lead Economist, EA1M1), Allen Dennis (Program Leader, AFCE2), and Keith Hansen (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 economic policymakers and stakeholders in Kenya was instrumental in the production of this report. The preliminary findings of KEU22 were shared with the National Treasury, the Central Bank of Kenya, and Kenya Revenue Authority, among others, and their inputs are gratefully acknowledged. Views were also solicited from a range of private sector participants. The team is thankful to Tobias Rasmussen (IMF Resident Representative) for very helpful comments on the draft report. November 2020 | Edition No. 22 iii EXECUTIVE SUMMARY 1. Kenya’s economy has been hit hard by COVID-19, of the healthcare system to manage infections, protect severely affecting incomes and jobs. The economy the most vulnerable households, and support businesses. has been exposed through the dampening effects on As a result, the fiscal deficit widened to 8.2 percent of GDP, domestic activity of the containment measures and up from the pre-COVID budgeted target of 6.0 percent of behavioral responses, and through trade and travel GDP and the debt to GDP ratio has risen to 65.6 percent disruption (affecting key foreign currency earners such of GDP as of June 2020 (from 62.4 percent of GDP in June as tourism and cut flowers). Real Gross Domestic Product 2019). Additional monetary stimulus and liquidity support (GDP) contracted by 0.4 percent in H1 2020 year-on-year was also made available through the Central Bank of (y/y), compared to growth of 5.4 percent in H1 of 2019. Kenya (CBK), which reduced the policy rate by 125 basis This reflects a worse-than-anticipated Q2 GDP outturn points (bps) to 7.0 percent and reduced the cash reserve (-5.7% y/y), mainly due to a sharp reduction of services ratio by 100bps to 4.25 percent. sector output, especially education (-56.2% y/y). As a result, the economy is projected to contract by 1.0 percent 4. Kenya’s economic outlook remains highly in 2020 in the baseline scenario, and by 1.5 percent in a uncertain, as the COVID-19 pandemic continues to more adverse scenario. This revision essentially adopts unfold in the country, and globally. The baseline outlook the adverse scenario outlined in the April 2020 update, adjusts for the negative impact of COVID-19 on Kenya’s reflecting the more severe impact of the pandemic to growth in 2020, following which the economy is projected date than had been initially anticipated, including on the to rebound relatively quickly in 2021, lifting real GDP by measured output of the education sector following the 6.9 percent y/y. A major factor in this strong rebound is the closure of institutions in March. impact on the national accounts of measured education sector output normalizing, which is projected to add 2. The special focus topic finds that the pandemic 2.2 percentage points to real GDP growth next year. The increased poverty by 4 percentage points (or an baseline projection also assumes that the major economic additional 2 million poor) through serious impacts impacts of the pandemic largely fade by the early part of on livelihoods, by sharp decreases in incomes and 2021, and is also predicated on normal weather supporting employment. The unemployment rate increased sharply, agricultural output. However, the situation continues to be approximately doubling to 10.4 percent in the second fluid, both in Kenya and worldwide; the global economy is quarter as measured by the KNBS Quarterly Labor Force tipped for a deep recession in 2020, with significant and Survey. Many wage workers who are still employed face potentially more prolonged negative spillovers on Kenya. reduced working hours, with average hours decreasing from 50 to 38 hours per week. Almost 1 in 3 household- 5. Risks to the base case are to the downside. The run businesses are not currently operating, and between key downside domestic risk is that a further acceleration February and June average revenue from household- in community transmission of the virus severely disrupts run businesses decreased by almost 50 percent. This economic activity for a more prolonged period. Another has exacerbated food insecurity, and elevated pain and risk is that unanticipated drought could reduce agricultural human suffering. output and rural incomes, as would a worsening and regional spread of the locust infestation (which has 3. In response to the crisis, the government has so far been confined to the north of the country). The deployed both fiscal and monetary policies to support key external risk is more prolonged and severe global the healthcare system, protect the most vulnerable economic weakness due to the pandemic, which would households, and support firms to help preserve jobs, weigh on exports (including tourism) and remittances. incomes and the economy’s productive potential. Future GDP outturns may also be heavily affected by data Tax revenue dropped below target, due to the marked revisions and technical adjustments, as national accounts slowdown in economic activity, as well as tax relief as part methodologies take into account the unprecedented of the government’s fiscal response package. At the same economic impacts of COVID-19. time, expenditures were raised to strengthen the capacity November 2020 | Edition No. 22 v Executive Summary Several near-term actions can play a role to combat digital technology, combined with better access to recession and revive the economy’s productivity, creating information, can mitigate usage of negative coping the conditions for a resilient and inclusive recovery. strategies and combat food insecurity while offsetting the increase in poverty. Securing access to food 6. First, the pandemic has shone a spotlight on and supporting livelihoods through social protection the healthcare sector and elevated the agenda to programs can help reduce the use of negative coping strengthen the quality of, and access to, health services strategies compromising assets or food consumption. in Kenya. More specifically, authorities should continue to Despite the urgency of making such support available allocate sufficient resources to the health sector, continue on a larger scale, a well-targeted approach is essential with mass testing, support self-quarantine (especially for to limit fiscal costs. For example, a targeted cash transfer individuals who cannot isolate at home without risk of of KSh 20,000 to poor households requiring a budget of infecting others), and protect the most vulnerable groups. KSh 50 billion equal to the cost of the VAT relief could There is also an ongoing need to ensure access to safe reach 2.5 million poor more than offsetting the increase healthcare for non-COVID-19 related health concerns, by of poverty by COVID-19. An expansion of the number of assigning adequate resources to these areas (including beneficiaries is essential as the ‘newly’ poor have different non-communicable diseases). Given fiscal constraints, profiles from the current poor but current programs must this will require redirecting expenditures to the highest also remain funded. In addition, new programs should be priority areas, whilst maintaining a focus on raising the implemented within the existing Government’s framework efficiency of spending and ensuring the transparent use of of social protection programs. The closure of schools has funds. As the crisis abates and focus turns to a sustainable affected learning by children, especially for households health provision model, Kenya will need to enhance its without appropriate access to remote learning. COVID-19 existing institutional setup for monitoring and responding has also created fear of infection at health facilities. Thus, to communicable disease outbreaks, and a return to specific interventions are needed to enhance access to furthering the still-critical “Big 4” agenda for medium- education and health services, to reduce human capital term inclusive growth, including achievement of universal losses. Digital technologies offer cost-effective tools for health coverage (UHC). remote learning as well as for enhanced health services. Improving communication strategies can help enhance 7. Second, supporting firms’ liquidity and digital the adoption of preventive behaviors and build trust in capabilities by a targeted approach, as well as improving the government’s pandemic response. access to information remains important to safeguard healthy firms from permanent closure. A key priority in 9. Fourth, monetary policy should continue to the short term is to alleviate the restriction of cash flows cushion the economy, while enhanced bank supervision, due to lower demand and the disruption of business considering increased loan quality challenges, is called activity. Direct measures the government could take to for to contain any emerging systemwide risks. With core address liquidity pressures could include, for example, inflation low and a large negative output gap having continued efforts to accelerate VAT refunds and ensure opened up, there is scope for the CBK to maintain an prompt payment of pending bills. The pressure to react accommodative monetary policy stance, transmitted to the crisis may also offer an opportunity to improve through the policy rate and other available instruments. overall managerial and especially digital capabilities Systemwide NPLs have been persistently high (even throughout firms in Kenya. Information can help firms before the crisis). Profitability in the sector has declined, to access new markets to compensate for loss of sales. and almost 40% of bank wide loans have been reprofiled. In addition, improving access to information about This calls for closer scrutiny to avoid systemic risks and to available support for businesses can increase the lean against rising macro-financial vulnerabilities. likelihood of reaching the firms most in need and could help improve expectations overall. 10 Fifth, and critically, fiscal policy faces the challenge of balancing the need to combat the pandemic and its 8. Third, supporting vulnerable households which negative economic effects, with maintaining the focus have lost livelihoods through social protection programs, on achieving fiscal consolidation over the medium- while safeguarding human capital for example by using term. With a sharp decline in tax revenues (due to the vi November 2020 | Edition No. 22 Executive Summary weakening in economic activity, and tax relief ), and expenditures and increase the efficiency of spending, for increase in COVID-related spending needs, the fiscal example by strengthening public wage bill management; deficit has widened, and debt vulnerabilities have risen. and (iii) taking advantage of debt service relief to free In the near term, tax and spending measures should up liquidity that would otherwise be absorbed by debt continue to support the healthcare system, protect the service. Finally, and as economic conditions allow, policy most vulnerable households, and support firms. Creating should progressively prioritize returning to a medium- fiscal space to fund these critical interventions could term fiscal consolidation path. This will be critical to reduce be supported through potential quick wins in areas Kenya’s public debt vulnerabilities and ensure continued such as: (i) streamlining of the large ongoing public macroeconomic stability, restore fiscal space to safeguard investment portfolio to create space for new, cleaner, and expand spending on development priorities, and greener, and impactful projects that could help create open more space for credit to the private sector and job- jobs; (ii) prioritization of other measures to cut wasteful creating private investment. Contact-intensive sectors such as hotels and food markets are reopening cautiously Photo: © Festo Lang | World Bank November 2020 | Edition No. 22 vii RECENT ECONOMIC TRENDS AND OUTLOOK The COVID-19 pandemic continues to play out The COVID-19 pandemic took a heavy toll on globally and in Kenya the Kenyan economy in H1 2020 1,400 Contribution to GDP growth 8 1,200 6.6 6.1 6 5.4 5.4 4.8 4.8 1,000 Percentage points 4 3.0 3.8 3.0 3.5 800 2.9 3.2 2 0.9 1.2 0.9 0.4 600 0.8 1.6 0.8 1.4 0.6 0.7 1.0 1.0 0.6 0 0.1 -0.4 400 -1.5 -2 200 H1 H2 H1 H2 H1 H2 H1 -4 0 2017 2018 2019 2020 13-Mar-20 13-May-20 13-Jul-20 13-Sep-20 13-Nov-20 Cumulative deaths Daily new cases (7-day moving average) Agriculture Industry Services Taxes GDP growth Source: World Health Organization Source: Kenya National Bureau of Statistics and World Bank COVID-19’s economic impact has been felt most strongly in the services sector High frequency indicators, such as the PMI, are consistent with a (contributions to change in real GDP y/y) significant rebound in Q3 2020 8.0 65 6.0 60 Purchasing Managers' Index (PMI 4.0 Percentage points > 50 indicates an expansion 55 2.0 0.0 50 < 50 indicates contraction -2.0 45 -4.0 40 -6.0 35 -8.0 Q1-19 Q2-19 Q3-19 Q4-19 Q1-20 Q2-20 30 Primary Secondary Tertiary Taxes GDP Apr-18 Oct-18 Apr-19 Oct-19 Apr-20 Oct-20 Source: Kenya National Bureau of Statistics and World Bank Source: CFC Stanbic Bank Private consumption usually drives growth, but is expected to Net exports are expected to have been broadly have been subdued in 2020 neutral for growth in 2020 10 3 8 2 6 1 Percentage points Percentage points 4 0 2 0 -1 -2 -2 -4 -3 -6 2016 2017 2018 2019 2020e -4 Private Consumption Government Consumption 2016 2017 2018 2019 2020e Gross Fixed Investment Net exports GDP Exports, GNFS Imports, GNFS Net exports Source: Kenya National Bureau of Statistics and World Bank Source: Kenya National Bureau of Statistics and World Bank Note: ”e” denotes an estimate Note: ”e” denotes an estimate viii November 2020 | Edition No. 22 RECENT ECONOMIC TRENDS AND OUTLOOK The headline consumer inflation rate has declined significantly Both food and non-food inflation have moderated during 2020 during 2020 (percent y/y) 10.0 8 Upper bound 7.5 6 Percentage points Percent 5.0 4 Lower bound 2.5 2 0.0 0 Apr-18 Oct-18 Apr-19 Oct-19 Apr-20 Oct-20 Apr-18 Oct-18 Apr-19 Oct-19 Apr-20 Oct-20 Overall in ation Core in ation rate 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 The current account deficit has compressed, Official borrowing helped finance the current account deficit, as the trade deficit has narrowed while portfolio investment declined 10 12 5 8 Percent of GDP Percent of GDP 0 4 -4.5 -5.8 -5.8 -5.2 -5.8 -5 -6.4 -7.2 0 -10 -4 2015 2016 2017 Aug-2018 2018 Aug-2019 2019 Aug-2020* -15 2016 2017 Aug-2018 2018 Aug-2019 2019 Aug-2020* Foreign Direct Investment Portfolio Investment Services trade Goods trade Income Net Errors and Omissions Other investments: net Net Errors and Omissions Current Account Capital & Financial Account Source: Central Bank of Kenya Source: Central Bank of Kenya Notes: * indicates an estimate Notes: * indicates an estimate A larger fiscal deficit has been budgeted for FY20/21, reflecting Kenya’s GDP is projected to contract in 2020 due to the slower growth and COVID-19 responses COVID-19 shock, and to rebound in 2021 2017/18 2018/19 2019/20* 2020/21e 2021/22f 2022/23f 8 0 6.9 6.3 6 5.7 5.4 -2 4.8 GDP growth (y-o-y %) 4 Percent of GDP -4 2 -6 -5.8 -1.0 -7.1 0 -8 -7.4 -7.6 -8.2 -9.0 -10 -2 2017 2018 2019 2020e 2021f 2022f Source: The National Treasury Source: World Bank Notes: “*” indicates preliminary actuals, ”e” denotes an estimate, “f” denotes forecast Notes: “e” denotes an estimate, “f” denotes forecast November 2020 | Edition No. 22 ix The State of Kenya’s Economy Photo: © Festo Lang | World Bank The State of Kenya’s Economy 1. Recent Economic Developments 1.1. Global and regional economic growth has 1.1.3. The pandemic has reversed previously strong contracted sharply growth in sub-Saharan Africa (SSA) and intensified 1.1.1. The COVID-19 pandemic continues to play out macro-financial vulnerabilities in the region. The region’s globally and in Kenya. Globally, many major economies output is projected to contract for the first time in over have been affected by renewed waves of COVID-19 two decades, due to the decline in external demand (from infections and deaths during the northern hemisphere the region’s key trading partners, China and Europe), the Summer and through October. The number of cases and fall in global commodity prices weighing on the region’s deaths has so far been lower than feared in sub-Saharan resource-exporters, reduced tourism and other export Africa (SSA), but concerns remain regarding limited receipts, as well as the domestic economic impacts healthcare system capacity. In Kenya, the number of of COVID-19 containment measures and behavioral confirmed cases fell encouragingly in the month to mid- responses. SSA output is expected to contract by 3.3 September, only to surge again in October (Figure 1). percent in 2020 with the resource rich countries being the most affected. Average Gross Domestic Product 1.1.2. The pandemic is having a prolonged and severe (GDP) growth for SSA’s metal exporters is estimated at -6.0 impact on the global, regional and Kenyan economies. percent, while oil exporters’ growth is estimated at -4.0 The global economy faces a deep recession. The outbreak percent in 2020.2 Fiscal pressures have mounted sharply, of COVID-19 and health policy responses adopted globally as governments have ramped up spending (including on (social distancing, lockdowns, restricted travel), weaker health services and cash transfers), and revenue collections consumer confidence, and uncertain future business have contracted on the back of discretionary tax cuts (to prospects, have resulted in a marked drop in global support economies) and weakening economic activity. As consumption and investment. High frequency indicators a result, most economies are experiencing increased fiscal show severe contraction in the first half (H1) of 2020, deficits and rising public debt burdens. but activity is recovering moderately in H2, led by China. Nonetheless, global trade is expected to contract by over 1.1.4. The growth momentum in the East African 10 percent in 2020. As a result, global economic activity Community (EAC) over the last decade has been in 2020 has shrunk to its lowest level since the global interrupted. Economic growth has declined, but remains financial crisis of 2009 (Figure 2). Fiscal policy measures positive in Tanzania, Uganda and Rwanda, while Kenya’s (with an estimated global fiscal stimulus equivalent to economy is expected to contract in 2020 (Figure 3). Most US$11 trillion1) and monetary policy measures (policy countries have also put in place fiscal and monetary policy rate reductions, quantitative easing and liquidity support) countermeasures to protect vulnerable households and have helped limit the damage. The IMF’s latest (October) support firms through the crisis. Activity is beginning to estimate is for world GDP to contract by 4.4 percent. pick up in the second half (H2) of 2020, with the Purchasing Figure 1: COVID-19 confirmed deaths (cumulative total) and new Figure 2: Global growth has fallen sharply cases (7-day moving average) in Kenya 1,400 5 1,200 3 1 1,000 GDP growth (y-o-y %) -1 800 -3 -3.3 600 -5 -5.2 400 -6.1 -7 200 -9 -9.1 0 -11 13-Mar-20 13-May-20 13-Jul-20 13-Sep-20 13-Nov-20 2015 2016 2017 2018 2019 2020e Cumulative deaths Daily new cases (7-day moving average) USA World Euro Area SSA Source: World Health Organization Source: World Bank computation; GEP June 2020; Africa’s Pulse October Issue 1 International Monetary Fund, “World Economic Outlook Update”, June 2020. https://www.imf.org/en/Publications/WEO/Issues/2020/06/24/WEOUpdateJune2020 2 Africa’s Pulse October 2020. 2 November 2020 | Edition No. 22 The State of Kenya’s Economy Managers’ Index (PMI) across Kenya, Uganda, and Tanzania 1.2.3. COVID-19’s economic impact has been felt most staying above the 50 points mark, signaling renewed strongly in the services sector, due to the shutdown of expansion in industrial activity. education institutions, as well as travel suspensions affecting tourism, and stringent social distancing 1.2. Kenya’s economy has been hit hard by measures that interrupted face-to-face services. The COVID-19, but swift policy responses and a gradual re-opening have supported services sector contracted by 3.2 percent year-on-year some subsequent recovery (y/y) in H1 of 2020, as a moderation in the first quarter 1.2.1. This edition of the KEU focuses on how was followed by a sharp outright contraction in the the economic impact of the pandemic has evolved, second quarter (Figure 5). Activity in the accommodation, including in comparison to expectations at the time of education, and transportation subsectors was severely the previous update in April. Kenya’s economy contracted curtailed. As a result, accommodation and restaurants by 0.4 percent in H1 2020, weighed down from March (tourism) contracted by 83.3 percent y/y in Q2, subtracting onwards by the COVID-19 shock, compared to growth of 0.9 percentage points from overall GDP growth. Transport 5.4 percent in H1 of 2019. Moving into the second half of the and storage services contracted by 11.6 percent y/y, and year, high frequency data point to a recovery in economic wholesale and retail trade activity by 6.9 percent y/y over activity, but output remains well below levels experienced the same horizon, also contributing to the services sector before the shock generated by the pandemic. Micro-level contraction. The impact on education was particularly data show that hardships and socio-economic challenges large, and was the main driver of the contraction of (lost incomes and unemployment) remain elevated, the overall output in Q2. With schools and other institutions extent of which is discussed in the special focus topic. shut down, education sector output is estimated to have contracted by 56.2 percent y/y in Q2, exerting a drag of 1.2.2. Broadly in line with the expectations outlined 3.8 percentage points on year-on-year GDP growth during in the previous update in April, the COVID-19 pandemic the quarter. has exerted a heavy toll. Real GDP growth moderated to 4.9 percent y/y in Q1 2020 (from 5.5 percent in Q1 2019), 1.2.4. A review of available national accounts data but the main impact of the pandemic so far was felt in across all services for 2020 to date makes clear that Q2, during which the economy contracted sharply, by the pandemic has severely constrained activity almost 5.7 percent y/y (Figure 4). In response, the government across the board. In the first half, wholesale and retail has deployed fiscal and monetary policy measures to trade’s contribution to growth declined to nil, while strengthen the capacity of the healthcare system, protect the contribution from transport and accommodation the most vulnerable households, and support businesses. contracted severely (Table 1). This reflects the closure of These policy responses, together with a gradual reopening national borders, suspension of international flights, and of the economy in recent months, have contributed to a limited mobility. As a result, accommodation and food modest recovery in H2 of 2020. services’ contribution to GDP shrunk to -0.5 percentage Figure 3: The pandemic has slowed EAC growth momentum Figure 4: Services and taxes contracted sharply in Q2 (contributions to change in real GDP y/y, percentage points) 12 8.0 10 6.0 4.0 Percentage points 8 GDP growth (%) 2.0 6 0.0 4 3.1 -2.0 2.5 2 2.0 -4.0 0 -6.0 -1.0 -2 -8.0 2015 2016 2017 2018 2019 2020e Q1-19 Q2-19 Q3-19 Q4-19 Q1-20 Q2-20 Tanzania Rwanda Kenya Uganda Primary Secondary Tertiary Taxes GDP Source: World Bank computation and World Bank Annual Macro-Poverty Outlook Source: KNBS and World Bank staff calculations (October 2020) November 2020 | Edition No. 22 3 The State of Kenya’s Economy Table 1: Services contribution to GDP growth (in constant 2009 prices) in H1 of 2020 Services Weight (2016) 2017 2018 2019 2019H1 2020H1 Services sub-sector 50.0 3.0% 3.4% 3.4% 3.1% -1.4% Wholesale and retail trade; repairs 7.5 0.4% 0.5% 0.5% 0.5% 0.0% Transport and storage 6.8 0.5% 0.6% 0.6% 0.4% -0.2% Accommodation and food service activities 1.1 0.2% 0.2% 0.1% 0.1% -0.5% Information and communication 3.8 0.4% 0.5% 0.4% 0.4% 0.3% Financial and insurance activities 6.3 0.2% 0.3% 0.4% 0.3% 0.3% Real estate 8.4 0.5% 0.4% 0.4% 0.4% 0.3% Professional, Admin and support serv. 2.2 0.1% 0.1% 0.1% 0.1% -0.1% Public administration and defence 3.9 0.2% 0.3% 0.3% 0.3% 0.2% Education 6.9 0.4% 0.4% 0.4% 0.4% -1.7% Human health and social work activities 1.8 0.1% 0.1% 0.1% 0.1% 0.1% Other service activities 1.3 0.1% 0.1% 0.1% 0.1% 0.0% All industries at basic prices 88.6 4.2% 5.7% 4.9% 4.9% 0.2% Taxes on products 11.4 0.6% 0.6% 0.5% 0.5% -0.6% GDP at market prices 100.0 4.8% 6.3% 5.4% 5.4% -0.4% Source: KNBS, economic survey 2020 and World Bank staff calculations points in H1 of 2020. The cumulative contribution (for Most schools (except for private/international schools the three key sub-sectors) declined to -0.7 percentage that switched to virtual mode) remained closed until the points from about 1 percentage points in H1 of 2019 (or fourth quarter (October 2020), when they were gradually approximately 0.3 percentage points of lost output). The re-opened. This has led to significant lost learning associated economic hardships include lost incomes and opportunities, with adverse implications on human capital rising unemployment. development (Box 1). In the special focus topic, we show that very few children (1 in 10) have had access to their 1.2.5. The closure of schools (in March 2020) to teachers during school closures, and that children in some contain the spread of infections has led to a collapse 30 percent of the households had not engaged in any in the education sector’s contribution to GDP growth. learning activities. Education output contracted by 25.7 percent in H1 2020 (compared with growth of 5.1 percent in H1 of 2019). This 1.2.6. Growth in financial and insurance activities, constituted the largest drag on growth of any subsector in information and communication (ICT), and real estate the economy, with the sector subtracting 1.7 percentage has also weakened. In H1 of 2020, real value added points from GDP in H1 of 2020, as opposed to contributing expanded by 5.2 percent, 7.3 percent, and 3.2 percent, 0.4 percentage points to growth in H1 2019 (Table 1). respectively, for the financial and insurance, ICT, and real estate sectors. The financial sector which has remained Figure 5: The services contraction was led by the education sufficiently liquid, profitable, and well-capitalized, has been subsector (contributions to change in real GDP y/y, percentage points) able to expand credit to the private sector, likely aided by 6.0 the timely repeal in late 2019 of interest rate caps (ahead 4.0 of the crisis). The shift to online and mobile banking has helped the financial sector adjust to COVID-19 with limited 2.0 frictions, and temporary waivers on loan performance Percent 0.0 classification (and provisioning) has helped to support -2.0 banking system liquidity. The ICT sector has benefited from -4.0 forced automation (with a switch to home-based working -6.0 and schooling), the increased demand for internet data, -8.0 and more e-commerce. Combined with health and public Q1-19 Q2-19 Q3-19 Q4-19 Q1-20 Q2-20 Wholesale & retail trade Accommodation & food Transport & Storage administration, these sub-sectors’ cumulative contribution Education All other services Total of services to growth slowed to 1.3 percentage points in H1 of 2020 Source: KNBS and World Bank staff calculations (from about 1.5 percentage points in H1 of 2019). 4 November 2020 | Edition No. 22 The State of Kenya’s Economy Box 1: Treatment in the national accounts of education sector output The measurement of Education is currently central to Kenya’s GDP growth projections. This is unprecedented, since the sector accounts for a relatively modest share of nominal GDP (4.2 percent in 2019) and usually displays a relatively stable growth pattern. However, due to COVID-19, this time is different, and the possibility of future methodological changes and data revisions make the estimated final GDP outturn for 2020, and GDP projections, unusually speculative at present. National accounting methodology for the education sector, including to take into account COVID-19: To estimate education sector output in nominal terms, the Kenya National Bureau of Statistics (KNBS) uses a measurement-of- cost approach (compensation of employees, consumption of intermediates, and consumption of fixed capital), which captures the cost it takes to render education services and contribute to value added (in current prices). This is in line with the methodology recommended by Eurostat.3 To obtain education output in real (volume) terms, the KNBS uses a number of weighted indicators, such as enrolment in primary schools; trained teachers in primary schools; enrolments in secondary schools; trained teachers in secondary schools; and enrolment numbers in higher education to obtain value added in constant prices. However, to take the complete closure of schools over Q2 and Q3 of 2020 (only reopening in late Q4) into account, the KNBS used a recent household survey on the socioeconomic impact of COVID that asked a question on the percentage of learning that was occurring during the Q2 closure. Approximately 40 percent of households indicated that their children were engaged in learning activity. This percentage was then used to adjust the underlying indicators downwards, to capture forgone value-added as a result of the school lockdown in Q2. Implications for GDP growth estimates and the outlook: The Q2 national accounts show a 56.2 percent contraction in education output in constant prices, shaving 3.8 percentage points off real GDP growth. This is an unprecedented decline (a six standard deviation move, in terms of quarterly percentage year-on-year changes over the past decade), and is the largest single driver of the Q2 real GDP contraction (followed by the contraction in real taxes on products, which reduced real GDP growth by 1.5 percentage points). The updated GDP projections in this KEU assume that the Q3 education outturn is similar to that in Q2, given that education institutions remained shut, followed by some recovery in Q4 (schools partially reopened in October), and full normalization in 2021. The shutdown of institutions in Q2 and Q3 of 2020 cuts real GDP growth by 2.2 percentage points in 2020, and when value addition in the sector normalizes in 2021, this is projected to add 2.2 percentage points back to GDP growth (see the outlook section). Measurement of education sector output is thus a major driver of the recent volatility in Kenya’s headline GDP, and also underpins the unusually strong rebound in real GDP projected for 2021. The measurement complexities summarized above, and possibility of further methodological revisions as national accounting best-practices evolve to take into account the highly unusual economic impacts of the pandemic, constitute an important source of potential historical and forecast GDP revisions moving into 2021. 1.2.7. Favorable rains and improved access to 1.2.8. Industrial output declined, owing to major inputs supported agriculture sector output. The sector disruptions in supply chains, reduced demand for contributed 1.4 percentage points to GDP growth in H1 output, and factory closures (Figure 8), but the sector of 2020 (from about 1.0 percent in H1 2019) (Figure 6) staged a recovery in Q3. Manufacturing value-added following broad-based growth in key food and cash contracted by 0.5 percent in H1 2020, compared to growth crops (Figure 7). Horticulture deliveries fell in H1 due of 3.7 percent in H1 2019. High-frequency data in the third to international transport disruptions to contain the quarter of 2020 point to a sizable rebound. The PMI of spread of COVID-19, but have recovered to their pre- surveyed firms reports a sequential expansion in activity in crisis level, while tea is benefiting from improved prices July through October (Figure 9). Electricity sales have also as a result of low output due to COVID-19 in India, and rebounded from their low in April and May 2020 (Figure 10). robust global demand.4 This recovery is supported by increased food production (wheat, maize flour, canned fruits, sugar and soft drinks), and also expansion in non-food manufacturing such as leather, galvanized sheet steel and cement (Figure 11). 3 https://ec.europa.eu/eurostat/documents/3859598/5936013/KS-GQ-13-004-EN.PDF/3544793c-0bde-4381-a7ad-a5cfe5d8c8d0 4 https://www.standardmedia.co.ke/business-news/article/2001386053/tea-prices-improve-amidst-low-global-supplies. Tea prices at the Mombasa auction have improved by 30% from US$1.87 per kg to US$2.49 per kg (Sept.2020). November 2020 | Edition No. 22 5 The State of Kenya’s Economy Figure 6: The COVID-19 pandemic took a heavy toll on the Kenyan Figure 7: Activity in agriculture remains strong economy in H1 2020 Contribution to GDP growth 200 8 6.6 6.1 150 6 3 months moving average (y/y %) 5.4 5.4 4.8 4.8 Percentage points 4 3.0 3.8 100 3.0 3.5 2.9 3.2 50 2 0.9 1.2 0.9 0.4 0.8 1.6 0.8 1.4 0.6 0.7 1.0 1.0 0.6 0 0.1 0 -0.4 -1.5 -2 -50 H1 H2 H1 H2 H1 H2 H1 -4 2017 2018 2019 2020 -100 Aug-18 Feb-19 Aug-19 Feb-20 Aug-20 Agriculture Industry Services Taxes GDP growth Co ee Tea Cane Source: Kenya National Bureau of Statistics Source: Kenya National Bureau of Statistics Figure 8: Broad-based slowdown in industrial activity Figure 9: PMI shows a sequential expansion in Q3 2020 Contribution to GDP growth 65 1.5 60 1.2 Purchasing Managers' Index (PMI > 50 indicates an expansion 1.0 0.9 0.9 55 0.5 0.8 0.8 0.7 0.3 Percentage points 0.3 50 0.4 0.2 0.4 < 50 indicates contraction 0.5 0.5 0.2 0.2 0.4 0.2 45 0.2 0.5 0.2 0.4 0.4 0.1 0.1 0.3 0.1 40 0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.1 0.0 -0.1 H1 H2 H1 H2 H1 H2 H1 35 -0.5 2017 2018 2019 2020 Minning & quarrying Manufacturing Electricity & water supply 30 Construction Industry Apr-18 Oct-18 Apr-19 Oct-19 Apr-20 Oct-20 Source: Kenya National Bureau of Statistics Source: CFC Stanbic Bank Figure 10: Electricity sales have rebounded from their April low, but Figure 11: Activity in non-food manufacturing troughed in May remain below-trend 800 30 y-o-y percent 3 months moving average 20 760 10 kWh mn 720 0 -10 680 -20 640 -30 -40 600 Feb-18 Aug-18 Feb-19 Aug-19 Feb-20 Aug-20 Sep-18 Jan-19 May-19 Sep-19 Jan-20 May-20 Sep-20 Cement Production Galvanized Sheet Source: Kenya National Bureau of Statistics Source: Kenya National Bureau of Statistics 6 November 2020 | Edition No. 22 The State of Kenya’s Economy 1.2.9. Growth performance in other industrial sub- 1.2.11. These developments make it imperative to sectors has also been curtailed by the pandemic. Despite continue providing liquidity support so that the private relative support from ongoing government spending on sector can meet operating costs, adjust to shocks, and infrastructure projects, growth in the construction sub- eventually be in a better position for the recovery. sector moderated to 4.6 percent in H1 2020 compared Targeted liquidity support to firms in sectors with strong to 6.6 percent in the same period in 2019. Growth in the links to the informal sector appears especially warranted energy and water sectors slowed down to 2.7 percent in H1 as the pandemic persists. The latest operationalization 2020 compared to 7.5 percent in H1 2019, as demand was of the government’s Credit Guarantee Scheme (CGS) is reduced by COVID-19. Power generation has been boosted expected to fill this critical need, particularly if it is able to by adequate precipitation (supporting hydroelectric scale-up to meet a likely increase in demand (see Box 3, output) and the ongoing shift towards more clean and below). Additional liquidity support to reduce payment renewable sources (with over 90 percent of electricity risks and supply risks (including trade finance facilities) to generated from more sustainable sources such as hydro, Micro, Small and Medium Enterprises (MSMEs) and large- geothermal, solar, and wind). As of 2019, Kenya’s installed scale businesses through commercial banks could also capacity is about 2,819 MW compared to a peak demand play a role. of 1,912 MW.5 1.3. The recovery in aggregate demand faces 1.2.10. The slowdown in growth is generating continued headwinds from the pandemic unemployment, significant income losses, and 1.3.1. Private consumption is estimated to have widespread hardship that has pushed many below the declined in H1 2020, as the COVID-19 shock took hold. US$1.90 per day extreme poverty line. Unemployment Given the backdrop of concerns over COVID-19, closure has increased dramatically, and despite some recent of entertainment spots, social distancing and movement signs of improvement, the unemployment rate remains restriction measures, private consumption is likely to slow more than double its pre-COVID-19 level. According to down significantly in 2020 (data will only be available in the latest household rapid response phone survey (RRPS), May 2021). The increase in unemployment (especially in the the unemployment rate rose sharply and peaked at 21 informal sector), closure of small businesses, and closure of percent at the beginning of June 2020 (Figure 12).6 The schools caused a drop in households’ disposable income marked increase in unemployment is also visible in the and private consumption (see Part 2). The reduction in VAT formal sector administrative data capturing a drop in the from 16 percent to 14 percent, additional cash transfers, number of formal private sector employees filing Pay as quick recovery in diaspora remittances, and favorable You Earn (PAYE) tax returns (Figure 13). Box 2 provides a agricultural harvests constituted positive offsets to the more disaggregated picture from PAYE data. drop in private consumption. Reflecting a strong rebound Figure 12: Unemployment rate (18-64 years, %) Figure 13: Number of formal employees in the private sector has decreased relative to March 2020 25 20 % of labor force 15 10 5 0 14th-27th May 28th May-10th June 11th-24th June Source: Kenya COVID-19 RRPS Source: KRA/National Treasury and World Bank staff calculations 5 KNBS-Economic Survey 2020. 6 See Part 2 for a more detailed discussion. November 2020 | Edition No. 22 7 The State of Kenya’s Economy Box 2: Sectoral employment and salary payouts during the height of COVID-19 In response to the peak impact of COVID in Q2, formal firms responded by reducing the number of employees (extensive margin adjustment), which led to a reduction in their overall payroll. The distribution of firm-level average salaries indicates those employees remaining on the payroll did not experience a pay-cut on average (intensive margin). It is possible, however, that specific groups of a firm’s workforce experienced cuts, which was balanced by an increase for another group within the same firm. Below, kernel density plots are shown of firm-level employment, the aggregate payroll and average wages for the three key sectors: Manufacturing, Hospitality, and Education. In each of the graphs the height of the curve indicates the mass of firms at a specific value on the x-axis, e.g. the number of employees. The curve for the number of employees, for example is highly skewed to the left, indicating that the majority of the firms are small and have less than 20 employees. Employment distribution: Manufacturing Salary payouts distribution: Manufacturing There is a leftward shift of employment in the manufacturing sector, with fewer firms in the right tail (of the kernel density) for Q2 of 2020 (April- June) relative to that of Q2 of 2019. This suggests that large firms have scaled back on formal hires. The skewness of the distribution has increased, which suggests the mass of larger firms has decreased. There is also an outright leftward shift in the distribution of firm-level salary payouts. However, there is no leftward shift for average salaries, which suggests that firms are not adjusting intensively through a cut in wages. Employment distribution: Hospitality Salary payouts distribution: Hospitality The leftward shift of employment and average wage payout for the hospitality sector is evidence of a reduced level of formal jobs. The magnitude of adjustment through the extensive margins is large for the sector - suggesting severe impacts from COVID-19. However, the distribution of average wages of workers still in employment has adjusted only moderately. Plotting the distribution of firm-level average wages suggests that the wage distribution has become more unequal as compared to 2019 with a greater mass for low-payed and high payed workers. The trend is similar for the education sector (below) that suffered the longest lockdown and only re-opened on October 12, 2020 (after closing on March 15, 2020). 8 November 2020 | Edition No. 22 The State of Kenya’s Economy Box 2: Sectoral employment and salary payouts during the height of COVID-19 (contd.) Employment distribution: Education Salary payouts distribution: Education The main message: Firms’ adjustment to the crisis has so far mainly taken place on the extensive margin. The magnitude of adjustment varied a cross sectors. Policy interventions could continue to support firms in meeting their wage obligations and disincentivizing layoffs. Providing assistance to those recently laid off through adjustment packages (including retraining, reskilling and hiring subsidies), appears warranted. Source: KRA data and World Bank staff Box3: Kenya’s new credit guarantee scheme MSMEs are the lifeblood of Kenya’s economy and employment. However, they face several constraints to growth, a key one being limited access to finance. The lack of adequate collateral is a serious obstacle for MSMEs to access finance. The 2018 World Bank Enterprise Survey identified that banks in Kenya require collateral worth 240 percent of the loan amount for 88 percent of small borrowers. During the interest cap regime, it became more difficult for MSMEs to access finance, and the situation further deteriorated during the COVID-19 pandemic. Most firms have experienced an unforeseen and dramatic fall in revenues and face cashflow constraints due to COVID-19. However, MSMEs have been disproportionately affected, and require immediate life-line interventions. At the same time, the increased risk-aversion of financial institutions (especially toward MSMEs) is making it harder for MSMEs to access finance. In 2019, the Government of Kenya (GoK) started the process of establishing a credit guarantee company with the objective of de-risking MSMEs through a partial credit guarantee scheme (PCGS). PCGSs are a widely-used policy tool to facilitate access to finance by creditworthy MSMEs, which would have been denied credit in the absence of sufficient collateral. PCGSs are particularly relevant and effective when there is enough liquidity in the financial system, yet it does not flow to some sectors or segments because there exists a high level of (real or perceived) credit risk. PCGSs have become a prominent component of anti-crisis packages implemented by governments to respond to the unprecedented threats posed by various crises, as financial institutions refrain from extending new loans to firms due to increased risks. At the onset of the COVID-19 pandemic, the GoK decided to fast track the process of providing relief to MSMEs by setting up an emergency guarantee scheme (i.e. the MSME Stabilization Fund (MSF)), which would later transition into a credit guarantee company. The Parliament of Kenya has approved capital of KSh 10 billion over the course of two years, and KSh 3 billion has already been made available. The GoK intends to work with other partners, including international development finance institutions and the private sector, to mobilize additional capital for both the emergency scheme and the proposed credit guarantee company. To ensure efficacy, it is critical for PCGs to maintain the appropriate institutional framework of independent legal entities with a focus on safeguards (sound environment and social management practices) and fiduciary arrangements (such as the provision of timely status reports) with participating financial institutions. November 2020 | Edition No. 22 9 The State of Kenya’s Economy in H2 2020, mobility data (that captures the weekly average subsequently (Figure 14). This recovery is also supported change in activity in retail and recreation, national parks, by a cautious reopening of the economy, low inflation, and bus stops, workplaces, places of residence, and groceries a gradual pickup in credit to households. and pharmacy) troughed in April, and are trending up Figure 14: Mobility data troughed in April and subsequently have been trending upwards Retail and recreation Parks 20 10 Change compared to baseline (%) Change compared to baseline (%) 0 0 -10 -20 -20 -40 -30 -60 -40 01-Feb-20 01-Apr-20 01-Jun-20 01-Aug-20 01-Oct-20 01-Feb-20 01-Apr-20 01-Jun-20 01-Aug-20 01-Oct-20 Kenya Other SSA countries Kenya Other SSA countries Transit stations Workplaces 20 10 Change compared to baseline (%) Change compared to baseline (%) 0 0 -10 -20 -20 -40 -30 -60 -40 01-Feb-20 01-Apr-20 01-Jun-20 01-Aug-20 01-Oct-20 01-Feb-20 01-Apr-20 01-Jun-20 01-Aug-20 01-Oct-20 Kenya Other SSA countries Kenya Other SSA countries Places of residence Grocery and pharmacy 25 10 Change compared to baseline (%) Change compared to baseline (%) 20 0 15 -10 10 -20 5 -30 0 -40 01-Feb-20 01-Apr-20 01-Jun-20 01-Aug-20 01-Oct-20 01-Feb-20 01-Apr-20 01-Jun-20 01-Aug-20 01-Oct-20 Kenya Other SSA countries Kenya Other SSA countries Note: The vertical line indicates the lockdown date: 15/03/2020; Lockdown type: Full Other SSA countries represents the unweighted average over 25 other countries in Sub-Saharan Africa Source: Google LLC Google COVID-19 Community Mobility Reports. https://www.google.com/covid19/mobility. Note: Figures reflect weekly average of percentage change compared to baseline 10 November 2020 | Edition No. 22 The State of Kenya’s Economy 1.3.2. As detailed in the special topic, the majority Kenya’s public finances were already stretched when the of Kenyans feel worried about the COVID-19 outbreak, crisis hit, and the crisis has intensified fiscal pressures, mostly out of fear of getting infected or losing their leaving little space for the government to increase employment. About 61 percent of Kenyans reported development spending. Going forward, there is, however, feeling generally nervous or anxious, compared to 80 scope to support investment and growth by increasing percent of Kenyans who felt nervous or anxious due to the efficiency and impact of public investment spending, the COVID-19 outbreak specifically. More than one in including by reprioritizing projects in the government’s five Kenyans even reported physical reactions such as large and fragmented portfolio of public investments. sweating, trouble breathing, nausea, or a pounding heart, when thinking about their experience with the pandemic, 1.3.4. The pandemic has reduced both exports and with almost one in ten experiencing these physical imports in 2020. Exports contracted by 0.6 percent in reactions on a daily basis. In urban and rural areas, Kenyans 2019 on the back of weak agricultural output growth, and were anxious mainly due to the fear of themselves or are expected to remain subdued in 2020, as the pandemic their family members getting infected (77 and 82 percent constrains external demand. The volume of imports is respectively) and the fear of losing their employment expected to contract in 2020, following supply chain or business (35 and 46 percent respectively). COVID-19 disruptions at the peak of the pandemic, low oil imports, not only has affected physical health, but mental health and rising uncertainty about prospects in the private as well, resulting in psychosis, anxiety, trauma, suicidal sector. With the contraction in imports outweighing the thoughts, and panic attacks. These feelings have negative weakness in exports, net exports are expected to add impact on the economy through a reduction in socializing, slightly to GDP growth, by 0.1 percentage points in 2020 recreational spending, and aggregate demand. (Figure 16). 1.3.3. Investment is expected to have contracted 1.4. Kenya’s fiscal consolidation has paused in 2020. Private investment likely remained subdued due to the pandemic, and public debt is in 2020, due to the decline in demand, interruption in rising rapidly supply chains, and elevated uncertainty about future 1.4.1. This section focuses on assessing the business prospects. Prior to COVID-19, observers had effectiveness of fiscal policy responses to COVID-19, expected that a combination of fiscal consolidation and considering the FY2019/20 budget (revenue and the repeal of interest rate caps would stimulate lending spending measures) and their effectiveness (including to the private sector. Instead, the pandemic has reduced emerging governance and public financial management demand, interrupted production networks, and increased [PFM] issues); commitment controls and public uncertainty about the future. As a result, private investment investment management (PIM) issues. We also examine is expected to slow down significantly in 2020 (Figure the FY2020/21 revenue and spending choices and how 15). Public investment growth has also faced headwinds. these are contributing to containing the impact of Figure 15: Private consumption accounts for most growth, but is Figure 16: Net exports are expected to have contributed slightly to expected to have been subdued in 2020 growth in 2020 10 3 8 2 6 1 Percentage points Percentage points 4 0 2 0 -1 -2 -2 -4 -3 -6 2016 2017 2018 2019 2020e -4 Private Consumption Government Consumption 2016 2017 2018 2019 2020e Gross Fixed Investment Net exports Exports, GNFS Imports, GNFS Net exports GDP Source: World Bank staff calculations Source: World Bank staff calculations November 2020 | Edition No. 22 11 The State of Kenya’s Economy COVID-19 and to a resilient recovery. Regarding public both vulnerable households and firms to cope through the debt and COVID-19, the pausing of fiscal consolidation crisis, and may have contributed to the finding reported and weakening of economic growth has considerably in Part 2 that 65 percent of Kenyans are satisfied with the increased the public debt burden. The section discusses government’s response in handling the crisis. how high debt service costs could constrain the COVID-19 response, ways to create more spending space and related 1.4.4. The government allocated additional resources debt optimization strategies; and whether COVID-19 towards strengthening the capacity of the healthcare induced stress on global capital markets has reduced the system and to address the associated socio-economic Government of Kenya’s (GoK) access to external financing challenges. The GoK allocated more resources to the health at acceptable costs. sector to help strengthen the capacity of the healthcare system in handling infections. This was expected to fund 1.4.2. The government’s fiscal policy countermeasures expansion of hospital infrastructure (increase number of against the COVID-19 pandemic in Q4 of FY2019/20, intensive care beds, put up temporary isolation facilities combined with the weaker economy, reversed fiscal in counties, obtain respiratory machines, supply of testing consolidation efforts. Tax revenue dropped below target kits, preventive kits etc.) as well as hire additional medical (Figure 17), while expenditures were raised to strengthen personnel and payment for extra workload (or over-time) the capacity of the healthcare system to manage infections, of medical staff. These interventions have, in general, protect the most vulnerable households, and support been well-received and, as shown in Part 2, 71 percent of businesses. The preliminary out-turn for FY2019/20 shows Kenyans believe that the government can provide health that the fiscal deficit widened to 8.2 percent of GDP, up from care to address the crisis. 7.6 percent of GDP in the prior fiscal year, and significantly higher than the original budget deficit target of 6.0 percent 1.4.5. Nonetheless, irregularities have emerged in (Figure 18). COVID-19 health sector procurement, likely exacerbated by the need to procure medical supplies very quickly 1.4.3. The pandemic and policy responses reduced at the height of the pandemic. In addition, healthcare domestic revenue mobilization. Revenue collection workers bemoan inadequate personal protective declined partly due to the decrease in economic activities equipment, a less conducive work environment, and and partly due to discretionary changes to tax policy. The motivation problems. A number of audits are ongoing, slowdown in economic activity contributed to a drop in and several senior officials have resigned to allow revenue collection by about KSh 90 billion (or 0.9 percent of investigations into COVID-19-related spending. This GDP). The greatest contributor to this shortfall was income comes at a time when the government has committed tax and VAT (Table 2). In addition, discretionary changes to improving transparency and reducing corruption in to tax policy taken to support business and protect the public procurement. For example, the public procurement most vulnerable households resulted in a net revenue loss and disposal Act (PPADA) 2015 requires that all procuring of about 0.6 percent of GDP (Box 4). This relief has helped entities (PEs), including State Owned Enterprises (SOEs), Figure 17: Actual revenue vs target (% of GDP) Figure 18: The fiscal balance deteriorated in FY2019/20 30 0 25 -2 Percent of GDP 20 Percent of GDP -4 15 -6 -6.0 10 19.0 18.7 18.8 17.9 18.3 17.0 16.5 -6.9 -6.8 -7.2 -7.4 5 -8 -7.6 -8.2 -9.1 0 -10 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21e 2016/17 2017/18 2018/19 2019/20* Actual Revenue Target Target de cit Actual de cit Source: The National Treasury Source: The National Treasury 12 November 2020 | Edition No. 22 The State of Kenya’s Economy publish and publicize all procurement contracts within 14 development expenditure, as well as low disbursement of days of signing contracts. However, most SOEs have stand- funds to counties (the receipt of transfers to counties was alone electronic platforms (e.g., ERP systems) that do not delayed at the time the health crisis was peaking, which interface with IFMIS or the Public Procurement Information was further complicated by delays in the adoption of the Portal (PPIP) for public disclosure. In the policy discussion division of revenue legislation). Recurrent expenditure as a below, expediting implementation of an Electronic share of GDP stood at 16.1 percent, 1.3 percent lower than Government Procurement (e-GP) system, capable of the target (Table 2). Nonetheless, expenditure on pensions automating all procurement processes is underscored. and interest payments rose marginally as a share of GDP. Development expenditure remained steady at 5.8 percent 1.4.6. The execution of the budget in FY2019/20 of GDP in FY2019/20, 0.9 percentage points lower than the reveals room for improvement, including creating space budget target of 6.7 percent of GDP. The public investment for post COVID-19 recovery projects. Actual government portfolio (PIP) contains a very large number of ongoing expenditure declined to 25.2 percent of GDP in FY2019/20, projects (over 3,972), of which 40 percent are either which was 2.4 percentage points lower than 27.6 percent of dormant or stalled. Reprioritization of the development GDP in the budget (including COVID-19 interventions). This budget could help create fiscal space for more impactful is attributed to low budget execution of both recurrent and and job-creating COVID-19 recovery projects. Box 4: GoK’s response to COVID-19 pandemic • Immediate fiscal responses through the supplementary FY2019/20 - 2020/21 Budget III of FY2019/20: Additional spending to strengthen KSh bn % of GDP the health system, protect vulnerable households and ease Tax Relief -186.3 -1.7 firms’ liquidity constraints (estimated at KSh 39.8bn - 0.4 CIT rate cut -33.9 -0.3 percent of GDP). KSh 6.8bn was allocated to the health PIT rate cut -100.5 -0.9 sector, KSh 13.8bn to clear pending bills, KSh 10bn for VAT VAT rate cut -49.4 -0.4 refunds, and KSh 10bn to scale up cash transfers to vulnerable households. Turnover rate cut -2.6 0.0 Revenue raising measures 81.32 0.7 • Fiscal stimulus package in FY2020/21 of KSh. 54bn (0.5 percent of GDP). These funds were allocated to youth work Withholding income tax increase 2 0.0 programs (KSh 10bn), school desks (KSh 6.5bn); environment CIT increase 28.2 0.3 (KSh 3.8bn); public infrastructure (KSh 5.4bn); agriculture (KSh VAT exemption removal 51.1 0.5 5bn); tourism (KSh 6.5bn); VAT refunds/and arrears clearance IDF exemption removal 0.02 0.0 (KSh 14.3bn); and social protection (KSh 1bn). New revenue raising measures (Jul 2020) 39.4 0.3 • Tax relief. From April 2020, full income tax relief for persons PIT exemptions removal 0.3 0.0 earning a gross monthly income of up to KSh 24,000 Excise duty 1.5 0.0 (or about US$225); reduction of corporate and the top VAT exemption removal 7.7 0.1 individual income tax rate (PAYE) from 30 percent to 25 Fees and Levies 5.4 0.0 percent; reduction of turnover tax rate from 3 percent to 1 CIT (MAT) and digital platforms 24.5 0.2 percent; and a VAT rate decrease from 16 to 14 percent. The Net tax relief -65.6 -0.6 authorities have also introduced revenue-raising measures Memo and removal of some tax exemptions. The net tax relief Nominal GDP 11266.6 since April 2020 is estimated at KSh 65.6bn (or 0.6 percent of GDP). • Monetary policy response: Additional monetary stimulus and liquidity support by the Central Bank of Kenya (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. • Financial sector policies: Extending flexibility to borrowers on loan terms based on individual circumstances arising from the pandemic; and setting fees for mobile transactions for amount less than KSh1000 at zero to disincentivize use of cash; approval of a CGS to support SME lending, with initial seed capital of KSh 10bn over two years. Source: World Bank staff November 2020 | Edition No. 22 13 The State of Kenya’s Economy 1.4.7. The crisis has further raised the importance of This adds to additional revenue to be realized over the tracking and continuing to work to reduce pending bills, medium term through removal of exemptions and as the in order to support firm cash flows and business activity. economy recovers (of about 0.8 percent of GDP) (Box 3). Pending bills accumulated in the second half of FY2019/20, as a result of delayed payments by the national government, 1.4.9. The fiscal out-turn in the first quarter of and low disbursements to county governments. Pending FY2020/21 budget shows revenue and expenditure bills at the national level stood at KSh 334.2 billion (3.3 falling below target. Tax revenue underperformed by KSh percent of GDP) in June 2020, the bulk of which (KSh 285.5 41.7bn (or 0.4 percent of GDP) to close at KSh 342.5bn (3.0 billion) was owing from SAGAs. Reducing this substantial percent of GDP) for Q1 of FY2020/21 (below the target stock of payments owing would support the recovery of of KSh 384.3bn). Revenue under-collection arose from the economy, including by boosting firm cashflows, and shortfalls in PAYE, VAT, and excise duty (Table 2) due to strengthening the quality of assets in the banking system tax relief granted to mitigate the impact of COVID-19 and (by affecting the servicing of commercial loans by low economic activity. The GoK has stated that restoring suppliers). Accordingly, to strengthen budget execution the top PIT tax bracket and reinstating VAT and CIT rates and improve inefficiency, there is a need for regular to their previous levels starting January 2021, which could reporting on commitments and pending bills, including deliver about 0.7 percent of GDP in additional revenues in as part of enhanced overall financial monitoring and FY2020/21. Budget execution has also fallen behind target, oversight of SAGAs, and putting in place a functional with total expenditure and net lending underspending system of commitment control, so that commitments by KSh 49.7bn (0.5 percent of GDP) from the target of KSh are fully captured on the system (IFMIS) and matched 565.3bn (5 percent of GDP). The delays in budget execution against appropriations.7 were especially acute for the county governments, as the passage of the Division of Revenue Bill, across counties 1.4.8. The pandemic continues to shape FY2020/21 was protracted. Consequently, the fiscal deficit at the end revenue and spending choices, as the government of September 2020 was about 1.2 percent of GDP relative focuses on containing the health crisis, without losing to the target of 1.1 percent of GDP. This deficit was funded sight of its Big-4 development agenda. The government exclusively through domestic borrowing (of 1.3 percent of allocated KSh 53.9 billion (equivalent to 0.5 percent of GDP) GDP), while net external financing recorded a repayment. to an economic stimulus package targeting eight key areas (Box 3). The budget also focused on scaling up reforms to 1.4.10. The COVID-19 shock and fiscal responses have fulfill the Big-4 agenda, which was allocated KSh 128.3 halted planned fiscal consolidation and led to a rapid billion (about 1.3 percent of GDP). Modest revenue-raising accumulation of public debt. Public debt rose to 65.6 measures are also built into the current budget, aiming percent of GDP in June 2020 (from 62.4 percent of GDP to raise about 0.2 percent of GDP in additional revenue. in June 2019) (Figure 21). This is driven by a wider primary Figure 19: Government expenditure has leveled off Figure 20: Expenditure allocations to health and social protection as a share of GDP have increased 30 Education Energy, Infrastructure And ICT Public Administration and International Relations 20 2.1 Health Percent of GDP Governance, Justice, Law and Order Environment Protection, Water and Natural Resources 10 Social Protection, Culture and Recreation 0.7 General Economic and Commercial A airs Agriculture, Rural & Urban Development 0 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21e 0 2 4 6 8 Development and Net Lending Other recurrent Wages and salaries Percent of GDP Interest payments County allocation 2019/20 2018/19 Source: The National Treasury Source: The National Treasury 7 See World Bank. (2020). Public Expenditure Review: Options for Fiscal Consolidation after COVID-19. 14 November 2020 | Edition No. 22 The State of Kenya’s Economy deficit of about 3.6 percent of GDP in FY2019/20, while of debt distress has increased to high, due to the COVID-19 interest payments continue to add to the burden. With crisis weakening exports and real GDP growth and delaying a significant slowdown in GDP growth and nominal fiscal consolidation. The composition of Kenya’s debt exchange rate depreciation, debt vulnerabilities have risen remains balanced between external and domestic sources (Figure 22). The latest IMF/WB LIC DSA (May 2020) finds that and the share of multilateral debt in external debt remains Kenya’s debt position remains sustainable, but that the risk substantial (Table 3). Figure 21: The public debt burden is increasing Figure 22: The increase in debt is driven by widening primary deficit and interest payments 80 15 65.6 62.4 59.2 10 Percentage points of GDP 60 57.4 53.8 5.1 Percent of GDP 5 3.6 3.3 3.2 1.7 40 0 20 -5 -10 0 2015/16 2016/17 2017/18 2018/19 2019/20* 2015/16 2016/17 2017/18 2018/19 2019/20* Primary balance Seignorage Growth e ect Interest Domestic External Total public debt (Gross) Revaluation Residual Change in debt Source: The National Treasury Source: The National treasury Table 2: Preliminary fiscal out-turn (% of GDP) for FY19/20 and FY20/21Q1 FY2019/20 FY2020/21 FY19/20 Q1 FY20/21 Q1 Actual Budget Actual Preliminary Target Total revenue and grants 17.2 17 4.2 3.4 3.9 Total revenue 17 16.5 4.1 3.3 3.8 Ordinary revenue 15.4 14.2 3.8 3 3.4 Taxes on Intl. Trade & Transactions (Import Duty) 1 0.9 0.3 0.2 0.2 Excise Taxes 1.9 1.9 0.5 0.4 0.5 Taxes on Income, Profits & Capital gains (Income Tax) 6.9 6.5 1.8 1.3 1.5 Taxes on goods and services (VAT) 3.8 3.9 1 0.7 1 Other Revenue 1.9 1.1 0.2 0.3 0.2 Ministerial Appropriation in Aid 1.6 2.3 0.4 0.3 0.4 Grants 0.2 0.5 0 0 0.1 Total expenditure and net lending 25.2 25.9 5.3 4.6 5 Recurrent Expenditure 16.1 16.3 3.8 3.3 3.6 Domestic Interest 3.1 2.7 0.7 0.7 0.6 Foreign Interest due 1.2 1.4 0.3 0.3 0.4 Wages & Salaries 4.4 4.3 1.1 1.1 1.1 Development 5.8 6 0.9 1 0.8 County Transfer 3.2 3.5 0.6 0.3 0.6 Balance including grants (cash basis) -7.8 -8.9 -0.9 -1.2 -1.1 Total Financing 7.8 8.9 0.9 1.1 1.1 Net foreign financing 3.3 3.6 0.1 -0.2 -0.1 Net domestic financing 4.4 5.3 0.8 1.3 1.2 Primary balance -3.6 -4.8 0.1 -0.2 -0.1 Memo: Nominal GDP (KSh billion) 10,199.9 11,275.8 Source: The National Treasury Note: 1- The above fiscal framework has been revised to accommodate the COVID-19 fiscal measures to be formalized in the context of supplementary budget III. November 2020 | Edition No. 22 15 The State of Kenya’s Economy Table 3: The share of multilateral debt in total PPG external debt has increased Jun-18 Jun-19 Jun-20 US$ million Share (%) US$ million Share (%) US$ million Share (%) Multilateral 8,031.39 33.5 8,938.51 30.2 12,407.05 37.6 o/w IDA 5,024.05 21 5,953.08 24.9 8,399.27 35.1 Bilateral 7,533.41 31.5 9,736.81 32.9 10,084.80 30.6 Paris Club 1,954.90 8.2 2,271.30 7.7 271.5 0.8 Non-Paris Club 5,626.00 23.5 6,507.10 22 7,165.90 21.7 Commercial 8,219.71 34.3 10,711.36 36.2 10,348.00 31.4 o/w Eurobond Export credit 165.51 0.7 165.51 0.6 0 Total 23,950.02 100 29,552.19 100 33,005.37 100 Source: The National Treasury 1.4.11. Debt service obligations are large and 1.5. Monetary policy has been growing, which constrains fiscal space for COVID-19 accommodative to mitigate the impact of related spending and job-creating investments. The the pandemic rising expenditure on interest payments (currently at 4.3 1.5.1. Inflation pressures have moderated, as the percent of GDP and accounting for over 25.2 percent of pandemic has increased slack in the economy. Headline total revenue) leaves limited room for public spending inflation remained within the CBK’s target band of 5±2.5 on priority areas and emergency COVID-19 expenditures. percent, helped by relatively low food and energy prices. Furthermore, Kenya’s revenue and exports were on Inflation has declined from 5.8 percent y/y in January to the decline relative to GDP even before the COVID-19 4.8 percent in October, supported by lower food prices, outbreak. Reversing this downward trend would boost a reduction of VAT, and muted demand pressures (Figure Kenya’s ability to meet both domestic and external debt 23). Food inflation slowed, primarily driven by decreases service obligations. Making use of available international in prices of several food items such as spinach, cabbages, debt service relief and other debt optimization strategies tomatoes, potatoes and loose maize grain (Figure 24). The could contribute to releasing needed fiscal space. easing inflation trends in Kenya are similar to EAC peers Furthermore, since most of Kenya’s external debt is (Figure 25), reflecting mainly lower food and energy prices. denominated in US dollars (67.3 percent),8 Kenya’s cost Additionally, core inflation (which excludes energy and of external debt service obligations is vulnerable to US food inflation) was 2.5 percent in October 2020, reflecting Dollar appreciation.9 an economy where underlying demand pressures have eased as the economy has been slowed to well below its potential growth rate by the effects of the pandemic. Figure 23: There has been significant decline in headline inflation Figure 24: Low food and non-food inflation has resulted in low rate during 2020 overall inflation (percent y/y) 10.0 8 Upper bound 7.5 6 Percentage points Percent 5.0 4 Lower bound 2.5 2 0.0 0 Apr-18 Oct-18 Apr-19 Oct-19 Apr-20 Oct-20 Apr-18 Oct-18 Apr-19 Oct-19 Apr-20 Oct-20 Overall in ation Core in ation rate Food In ation Energy In ation Core In ation Source: Kenya National Bureau of Statistics Source: Kenya National Bureau of Statistics 8 Provisional data for end-June 2020. National Treasury, “Public Debt Management Report,” September 2020. 9 The latest Debt Sustainability Analysis by IMF/WB was published in May 2020. 16 November 2020 | Edition No. 22 The State of Kenya’s Economy Figure 25: Headline inflation is moderate across Figure 26: Private sector credit growth remains modest, the EAC partner states while credit to government has accelerated 14 64 56 10 48 y-o-y percent 40 Percent 6 32 24 2 16 8 -2 0 Apr-18 Oct-18 Apr-19 Oct-19 Apr-20 Oct-20 Aug-18 Feb-19 Aug-19 Feb-20 Aug-20 Rwanda Uganda Kenya Tanzania Private sector credit Government (Net) Source: Kenya National Bureau of Statistics, National Institute of Statistics Rwanda, Source: Central Bank of Kenya Uganda Bureau of Statistics and Tanzania National Bureau of Statistics 1.5.2. The benign inflation environment over the Figure 27: Interbank rate and activity volume reflects ample liquidity review period provided space for accommodative 10 40,000 monetary policy to help mitigate the impact of 9 35,000 COVID-19 pandemic. Accordingly, the CBK reduced its 8 30,000 key policy rate in January and March by a total of 100 basis 7 Intebank volume 25,000 points to 7.25 percent, followed by a 25 basis points off- 6 Percent 5 20,000 cycle rate cut in April, bringing the benchmark rate to 7.00 4 15,000 percent. The cash reserve ratio (CRR) requirement was 3 also reduced by 100 basis points to 4.25 percent in March 10,000 2 to further support domestic liquidity. The CBK has also 1 5,000 adopted other regulatory measures and taken preemptive 0 2019-02-04 2019-05-08 2019-08-05 2019-11-04 2020-02-05 2020-05-07 2020-08-06 0 2020-11-03 actions to minimize the economic fallout of the COVID-19 Volume (RHS) CBR Interbank rate pandemic (Box 4).10 Source: Central Bank of Kenya Table 4: Financial soundness indicators (FSI) show a decrease in profitability Statutory Direction to be Value(%) as at Weight Requirement stable Aug-20 Capital Adequacy Total capital/RWA (CAR) 20 15 ≥ 18.4 Asset quality NPLs (gross)/Total loans 5 5 ≤ 13.6 NPLs (provisional)/capital 10 25 ≤ 16.9 Profitabilty ROA (after-tax) 15 2 ≥ 1.8 ROE (after-tax) 15 20 ≥ 15.5 Liquidity Liquid assets/total assets 10 30 ≥ 42.2 Liquid assets/short-term liabilities 10 50 ≥ 53.2 Sensitivity to Market Risk Net FX exposure/capital (abs) 5 5 ≤ 15.7 Source: Central Bank of Kenya Note: Assets Quality category excludes FX loans/Total loans 10 The CBK has also provided some relief measures to MSMEs by (i) temporary reducing the credit risks assigned to their loans; (ii) assigning a 0 percent risk weight for their guaranteed loans; (iii) SMEs and corporate borrowers can contact their banks for assessment and restructuring of their loans based on their respective circumstances arising from the pandemic; and (iv). Banks meeting all the costs related to the extension and restructuring of loans. November 2020 | Edition No. 22 17 The State of Kenya’s Economy 1.5.3. Private sector credit growth has trended higher months of 2020, up from 12.6 percent in the same period over the course of 2020 but remains moderate, partly in 2019. However, this ratio does point to a significant level due to rising COVID-19 related uncertainty and increased of problem loans, and likely understates the strain on loan government borrowing. Credit to the private sector quality in view of the temporary relaxation of regulatory expanded by 8.3 y/y in August 2020 (compared to 6.3 loan classification requirements in the context of the percent y/y in August 2019) (Figure 26). Banks had started COVID-19 crisis, a factor that could constrain future lending lending to the private sector at an increasing pace since (Figure 28). The generally subdued business environment the removal of interest rate caps in November 2019, but the has seen NPLs increase across manufacturing, trade and momentum was slowed by the COVID-19 pandemic. As a personal sectors. Asset quality for the small and medium result, commercial banks are taking a cautious approach in banks is especially weak, with average NPLs higher than extending fresh credit, in an environment where corporates 15 percent, well above statutory guidelines of 5 percent and individuals are increasingly seeking extensions on or less. The country’s banking sector was highly profitable their loan repayments due to liquidity challenges. At the pre-COVID-19, with an average return on equity (ROE) same time, net credit to government has accelerated as and return on assets (ROA) above regulatory thresholds the government switched to domestic sources to fund at the end of 2019, but both ROE and ROA have fallen its widening budget deficit (including COVID-19 related below these thresholds to 15.5 percent and 1.8 percent, spending). Because increasing credit to the private sector respectively as of August 2020 (Table 4). Net exposure to depends crucially on prospects for economic recovery foreign exchange is also high (at 15.7 percent) relative to post-COVID-19, progress must be made in terms of fiscal statutory requirements of 5 percent (Table 4). consolidation and de-risking lending by commercial banks, especially for MSMEs. Additionally, the average interbank 1.5.5. The COVID-19 outbreak and economic rate decreased to 2.7 percent in October 2020, from about slowdown have resulted in considerable financial market 5.1 percent in April 2020, consistent with increased liquidity volatility. As the COVID-19 outbreak took hold, volatility in in the money market (Figure 27). the equities market rose markedly. Foreign equity outflows from the Nairobi Securities Exchange (NSE) 20 share index 1.5.4. Kenya’s banking sector remains generally sound, rose by approximately 31 percent between January and but the extra pressures generated by the pandemic bear October 2020, (Figure 29). The NSE 20 share index was close monitoring. Kenyan banks are well capitalized at 1,784 points by the end of October 2020, down by 32.5 the aggregate level, with a total capital adequacy ratio of percent, compared to 2,643 points by end October 2019. 18.4 percent as of August 2020, compared to 18.3 percent Further, the NSE 20 share index has failed to bounce back, in August 2019 and above the 15 percent regulatory in contrast to many other global stock markets (including minimum. The share of non-performing loans (NPLs) slightly Emerging Markets indices). increased to an average of 12.9 percent in the first eight- Figure 28: High NPLs constrain lending conditions Figure 29: The flight to safety has led to net foreign outflows (NSE) and a reduction of the NSE 20 Share index 25 4000 10,000 NSE 20 share index (Jan 1966=100 8,000 20 6,000 3000 15 KSh Billion Percent 4,000 10 2,000 2000 0 5 -2,000 0 Aug-18 Dec-18 Apr-19 Aug-19 Dec-19 Apr-20 Aug-20 1000 -4,000 Apr-18 Oct-18 Apr-19 Oct-19 Apr-20 Oct-20 NPLs/Total Loans NPLs/Total Loans (large) NPLs/Total Loans (medium) NPLs/Total Loans (small) NSE 20 share Index Net foreign out ows to equities (RHS) Source: Central Bank of Kenya Source: Central Bank of Kenya 18 November 2020 | Edition No. 22 The State of Kenya’s Economy 1.6. Kenya’s external position has been (Figure 31). Remittances dipped in April and May but have supported by import compression and subsequently staged a strong recovery. resilient remittances 1.6.1. The current account deficit has narrowed 1.6.2. Affected by the rapid global spread of COVID-19 slightly, as remittance inflows remained resilient, while and containment measures in Kenya and its trading the global pandemic compressed both exports and partners, both merchandise exports and imports imports. The current account deficit fell to 4.5 percent of contracted sharply over 2020 to date (Figure 32). The GDP in the 12-month to August 2020, from 5.2 percent contraction in imports was broad-based (i.e. oil imports, of GDP over the same period 2019 (Figure 30), driven by capital, and transportation equipment all declined) in resilient diaspora remittance inflows, and lower imports April-May (Figure 33), but have recovered substantially of goods and services which more than outweighed a in Q3 and Q4. Similarly, the value of exports (tea, coffee, decline in exports of goods and services. Slowing domestic horticulture, and manufactured exports) contracted in demand and falling oil prices led to contraction in the April-May, with the value of horticulture and manufactured value of imports and services in H1 2020. Reflecting a exports contracting by 7.8 percent and 0.4 percent. More rebound from a very weak performance in 2019, Kenya’s recently, exports of goods have rebounded, to grow by 1.3 export of goods and services have leveled off, despite the percent in the first eight months of 2020 compared to a collapse in tourism due to COVID-19. The weakness in the contraction of 4.8 percent over a similar period in 2019. trade balance was mitigated by a strong surplus in the Horticulture exports, however, declined by 7.7 percent, secondary income account due to diaspora remittances largely reflecting the sharp contraction in flower exports Figure 30: The current account deficit has compressed Figure 31: Remittances remain steady, helping to limit the current account deficit 10 350 300 5 250 Percent of GDP 0 US $ (millions) 200 -4.5 -5.8 -5.8 -5.2 -5.8 -5 -6.4 150 -7.2 100 -10 50 -15 2016 2017 Aug-2018 2018 Aug-2019 2019 Aug-2020* 0 Services trade Goods trade Income Jun-18 Dec-18 Jun-19 Dec-19 Jun-20 Sep-20 Net Errors and Omissions Current Account Source: Central Bank of Kenya Source: Kenya National Bureau of Statistics Figure 32: Goods imports declined at faster pace than exports Figure 33: All categories of imports declined over the review period Growth in value of total exports and imports 80 y-o-y 3 month moving average grrowth(%) 40 60 30 40 20 20 y-o-y growth (%) 10 0 0 -20 -10 -40 -20 -60 -30 -80 Feb-18 Aug-18 Feb-19 Aug-19 Feb-20 Aug-20 -40 Feb-18 Aug-18 Feb-19 Aug-19 Feb-20 Aug-20 Total imports Industrial imports Transport imports Exports Imports Machinery imports Oil imports May-18 Source: Kenya Nov-18 National Bureau May-19 of Statistics Nov-19 May-20 Source: Kenya National Bureau of Statistics November 2020 | Edition No. 22 19 The State of Kenya’s Economy in April, but have recovered, reflecting increasing demand investment (of -1.2 percent of GDP), and 4.6 percent of GDP from key export markets with easing of restrictions and of net other investments (official borrowing and corporate containment measures, and increased cargo space. In borrowing from abroad) (Figure 34). Programmed official addition, manufactured goods exports have mostly borrowing included IMF’s Rapid Credit Facility of US$750 improved in recent months due to a pickup in demand and million, a World Bank loan (US$1,000 million), an AfDB credit easing of supply restrictions in cross boarder destination (US$500 million), among others. Consequently, official markets, and increased cargo capacity. foreign reserves, which currently stand at US$9.2 billion as of August 2020, equivalent to 5.7 months of import cover 1.6.3. Official borrowing and private investment (Figure 35), provide an adequate buffer to the short-term inflows dominate the financing of the current account external shocks. deficit, as external financing pressures increased in the wake of the pandemic. The shock to emerging market 1.6.4. Since the onset of the COVID-19 crisis, the and frontier economies’ access to international capital Kenyan Shilling has depreciated against the US dollar. markets makes the financing of the current account deficit During 2020 through November 13, the Shilling depreciated considerably more challenging. The capital and financial by 7.7 percent against the US Dollar, to stand at KSh 109.1/ account balance stood at 3.8 percent of GDP in the year to US$. Much of this change occurred in the early part of August 2020 compared to 6.7 percent of GDP in the year to the COVID-19 crisis, against the backdrop of broad-based August 2019. This represents net foreign direct investment US Dollar appreciation against most countries’ currencies (FDI) equivalent to 0.5 percent of GDP, net portfolio (the US Dollar appreciated by 6.8 percent on a global Figure 34: Official borrowing helped finance the current deficit as Figure 35: Official foreign reserves have been supported by official portfolio flows contracted borrowing inflows 12 7 9000 6 8000 8 5 Percent of GDP Months of import cover 7000 Reserves (US$ million) 4 4 6000 5000 3 0 4000 2 3000 1 -4 2015 2016 2017 Aug-2018 2018 Aug-2019 2019 Aug-2020* 2000 0 Foreign Direct Investment Portfolio Investment Aug-18 Dec-18 Apr-19 Aug-19 Dec-19 Apr-20 Aug-20 Net Errors and Omissions Other investments: net Reserves (US$ million) Months of Import cover (Average of last 3 years) Capital & Financial Account Source: Central Bank of Kenya Source: Central Bank of Kenya Figure 36: Most currencies in Africa and the Middle East, including Figure 37: The significant real effective appreciation of the Shilling the Shilling, have depreciated vs. the US Dollar in 2020 (% in recent years has only partly been reversed by developments in depreciation through 13 Nov) 2020 60 REER indexed Sept 2015=100 140 50 40 130 Percent 30 120 20 10 110 0 100 Zambia Kwacha Angola Kwanza Turkey Lira Nigeria Naira Mozambique Meticais South Africa Rand Mauritius Rupee Kenya Shilling Botswana Pula Morocco Dirham Rwanda Franc Ghana Cedi Israel Shekel Egypt Pound Tunisia Dinar Uganda Shilling Kuwait Fils Tanzania Shilling 90 80 Sep-15 May-16 Jan-17 Sep-17 May-18 Jan-19 Sep-19 May-20 Sep-20 Kenya Uganda Rwanda South Africa Source: World Bank staff calculations based on data from Haver Source: World Bank staff calculations based on Real Effective Exchange Rate (REER) Indices provided by Bruegel11 11 https://www.bruegel.org/publications/datasets/real-effective-exchange-rates-for-178-countries-a-new-database/ 20 November 2020 | Edition No. 22 The State of Kenya’s Economy trade-weighted basis in Q1). Although the US Dollar has exchange rate in recent years (Figure 37). This adjustment in subsequently retraced many of these gains globally, most Kenya’s price levels relative to those of its trading partners emerging and frontier market currencies, notably in the is expected to be positive in helping the economy adjust Middle East and Africa, and including the shilling, remain to the COVID-19 shock and stage a recovery, including by weaker (Figure 36). In real trade-weighted (i.e., effective) increasing the international competitiveness of goods and terms, however, the developments during 2020 have only services produced in Kenya. partly reversed the significant trend-appreciation of the 2. Outlook and Risks 2.1. The economic outlook remains highly 2.1.2. The economic cost of COVID-19 to Kenya is uncertain due to the pandemic expected to be very large, in line with the enormous 2.1.1. The outlook for the economy, both globally toll of the pandemic globally. At the end of 2019, and in Kenya, remains highly uncertain, as the average income in Kenya was estimated to be US$1,899, COVID-19 pandemic continues to unfold. Under baseline as measured by output per capita. Due to the crisis, this assumptions, Kenya’s economic output is projected to is projected in the base case to decline by 3.3 percent in contract by 1.0 percent in 2020, and to rebound in 2021, 2020, to US$1,826 (in 2019 prices). Such a contraction in with real GDP increasing by 6.9 percent (Table 5 and Figure real average income is rare; it was last recorded in 2008, 38). Compared to the previous projections, in the April when real output per person in Kenya shrank by 2.5 2020 KEU, this implies a sharper projected fall in GDP in percent as the economy experienced the triple shock of 2020 (similar to projections under the adverse scenario political turbulence, severe drought, and the start of the described in April), followed by a stronger rebound in 2021. global financial crisis. Looking further ahead, under the A major driver of the revised projections is the treatment World Bank’s baseline projections, real GDP per capita in in the national accounts of education sector output. The 2022 will be lower by US$128 compared to projections shutdown of institutions in Q2 and Q3 of 2020 cuts real before the crisis hit, at US$1,968 (in 2019 prices). These GDP growth by 2.2 percentage points in 2020, and when estimates should be treated as indicative only, in light value addition in the sector normalizes in 2021, this is of the uncertain actual future path of the economy as it projected to add 2.2 percentage points to GDP growth. emerges from the COVID-19 shock, and because the path Stripping out these unprecedently large education effects, the economy would have taken had the pandemic never GDP growth (ex. education) is projected at 1.3 percent in occurred can never be known. However, they serve to 2020 and 5.0 percent in 2021. illustrate that the economic costs of the crisis, due to lost output, are certainly very large. Figure 38: Recent revisions to real GDP growth projections (percent Figure 39: The crisis is expected to have a large impact on real change in real GDP y/y) average incomes 8.0 2,200 7.0 2,100 6.0 5.0 2,000 US$ (2019 prices) Percent 4.0 3.0 1,900 2.0 1.0 1,800 0.0 1,700 -1.0 -2.0 1,600 2017(a) 2018(a) 2019(a) 2020(p) 2021(p) 2017(a) 2018(a) 2019(a) 2020(p) 2021(p) 2022(p) Historical, & Pre-Covid Projection KEU Apr 20 KEU Nov 20-Baseline KEU Nov20-Baseline Excl. Educ Pre-COVID path of real GDP per capita Post-COVID path of real GDP per capita Source: KNBS (2017-19 actuals); World Bank staff projections (p) (2020-21) Source: KNBS (2017-19 actuals); World Bank staff projections (p) (2020-22) November 2020 | Edition No. 22 21 The State of Kenya’s Economy Table 5: Recent revisions to real GDP growth projections (percent change in real GDP y/y) 2017(a) 2018(a) 2019(a) 2020(p) 2021(p) Historical, & Pre-Covid Projection 4.80% 6.40% 5.40% 6.00% 5.80% KEU Apr 20 1.50% 5.20% KEU Nov 20 - Baseline -1.00% 6.90% KEU Nov 20 - Baseline Excl. Educ 1.30% 5.00% KEU Nov 20 - Adverse -1.50% 4.50% KEU Nov 20 - Adverse Excl. Educ 1.10% 3.50% Source: KNBS (2019 actual (a)); World Bank staff projections (p) (2020-21) 2.1.3. The base case projections assume that the somewhat lower in 2020 (-1.5 percent, reflecting mainly economic effects of COVID-19 fade by early to mid- a weaker Q4 outturn), and could be considerably lower in 2021 (including as vaccines and additional therapeutic 2021 (4.5 percent). treatments become available). This will lead to increased domestic and global demand, following the easing of 2.1.4. The recovery expected in the base case is containment measures, and increased international travel. broad-based across sectors (Table 6). Agricultural output Furthermore, the baseline assumes that normal weather growth of around 3.9 percent over the medium term supports agricultural production and its strong linkage (2022) assumes no adverse weather shocks and that recent to industrial and services output. However, the baseline reforms to improve the use of fertilizers and farm inputs projections remain subject to elevated uncertainty due are successful and will continue to be scaled up. Industrial to the pandemic. The scale of the pandemic, and its growth of 4.0 percent in the base case will be supported by economic effects so far, have been more severe than the supply of raw materials from agriculture, a recovery in anticipated at the time of the previous KEU (in April), and domestic consumption, and improved investor confidence. have fallen more in line with the adverse scenario than The services sector is projected to grow by 7.1 percent in the the base case for the World Bank’s economic projections medium term as the COVID-19 crisis abates and domestic at that time. In a more adverse scenario going forward, trade, transport, accommodation, and education activities where the pandemic causes more prolonged disruption rebound, supported by accommodative monetary policy to the economy, GDP growth could be expected to be and private credit growth. Table 6: Medium term growth projections 2017 2018 2019 2020e 2021f 2022f (annual percentage change) Real GDP growth, at constant market prices 4.8 6.3 5.4 -1.0 6.9 5.7 Private Consumption 7.4 6.5 5.0 1.0 7.6 6.3 Government Consumption 3.9 5.6 4.9 5.7 4.9 3.6 Gross Fixed Capital Investment 8.3 1.3 2.4 -6.2 8.2 7.7 Exports, Goods and Services -6.2 3.9 -0.2 0.1 7.3 6.4 Imports, Goods and Services 8.6 2.5 -2.0 -0.5 8.8 8.0 Real GDP growth, at constant factor prices 4.4 6.3 5.5 -1.0 6.9 5.7 Agriculture 1.6 6.0 3.6 5.6 4.2 3.9 Industry 3.9 5.5 4.6 2.1 3.6 4.0 Services 5.9 6.7 6.7 -4.8 9.3 7.1 Inflation (Consumer Price Index) 8.0 4.7 5.2 5.1 5.2 5.5 (shares of GDP) Current account balance -7.2 -5.8 -5.7 -4.5 -4.8 -5.2 Net foreign direct investment 1.3 1.7 1.1 0.3 0.9 1.6 Fiscal balance / 1 -8.6 -7.4 -7.7 -7.8 -8.9 -7.1 Debt / 1 57.4 59.2 62.4 65.6 67.8 68.5 Primary Balance / 1 -5.1 -3.6 -3.6 -3.6 -4.8 -2.7 Source: World Bank, Macroeconomics, Trade & Investment Global Practice and the National Treasury Notes: e = estimate, f = forecast; /1 fiscal data are presented on a fiscal rather than calendar year basis, 2017 = fiscal year 2016/17. 22 November 2020 | Edition No. 22 The State of Kenya’s Economy 2.1.5. Strong growth in consumption will be driven in 2021/22. The resulting fiscal deficit is projected at 9.0 by a recovery in private consumption, complemented percent in FY2020/21 and 7.1 percent in FY2021/22, while by higher government consumption. The reopening public debt will rise by 2.8 percentage points to about 68.5 of the economy is expected to boost activity, reduce of GDP in FY2021/22. The widening of the fiscal deficit in unemployment, and support wage and income growth. FY20/21 compared with FY19/20 is attributable to the fact As a result, private consumption is projected to grow that the COVID-19 shock occurred only in the final quarter at 6.3 percent in the medium term. In addition, private of FY19/20. consumption growth is predicated on continued growth in remittances, favorable agricultural harvests, moderate 2.1.8. In the base case, the external balance is inflation (that will safeguard consumer purchasing power), projected to remain supported by diaspora remittances, and increased credit to households. The baseline assumes which have been remarkably resilient so far. Current an increase in government consumption in line with the account inflows will be supported by continued resilience Economic Stimulus Program (of about 0.6 percent of GDP) of remittance inflows and a recovery of exports of Kenya’s and the Post COVID-19 Economic Recovery Strategy (ERS). main products (horticulture and tea) to pre-crisis levels. Meanwhile imports are expected to increase, driven by 2.1.6. The investment rebound in the medium rising domestic demand to support private consumption term is predicated on restored investor confidence, and industrial activity, and a modest uptick in oil prices over rising credit to private sector and a gradual return to a the medium term. The current account deficit is projected sustainable fiscal consolidation path. Private investment at 5.2 percent of GDP in the medium term. has been declining following years of low growth in credit to the private sector and expansionary fiscal deficits, 2.1.9. Inflationary pressures are expected to remain largely funded from domestic sources. Pent-up private well-contained in the medium term. The moderate sector investment demand and growing access to credit projected inflation rate assumes that the supply disruptions (including through initiatives to support MSMEs using a associated with COVID-19 ease, and the absence of major CGS are expected to drive growth of private investment, weather shocks that could affect food prices. The medium- post-COVID-19. Meanwhile growth of government term growth projection also assumes that oil prices remain investments will remain modest, reflecting the need to below pre-pandemic levels, reducing price pressures since create space for health-related spending and cash transfers Kenya is a net oil importer. As a result, headline inflation is to households, while the crisis persists. Government projected at 5.5 percent in the medium term. capital projects are expected to be limited to those with high economic impact and supportive of post-COVID-19 2.2. Risks to the Outlook recovery (including creating jobs). The resulting investment 2.2.1. The outlook remains subject to unusually growth is projected at 7.7 percent in the medium term (or high uncertainty, hinging on the progression of the 18.1 percent of GDP). COVID-19 pandemic, globally and in Kenya. The key downside risk is that a further acceleration in community 2.1.7. As Kenya continues to manage COVID-19 transmission of the virus severely disrupts domestic infections, the medium-term fiscal consolidation economic activity for a more prolonged period. The targets have been paused. With lower domestic revenue baseline also assumes adequate rains will create favorable mobilization and elevated budget expenditures prior to the conditions for agriculture. Unanticipated drought could unwinding of COVID-19 related fiscal stimulus measures, reduce agricultural output and rural incomes, as would a the budget deficit is expected to remain wide and add to worsening and regional spread of the locust infestation the stock of public debt. Total revenue as a share of GDP (which has so far been confined to the north of the country). is projected to decline from 17.0 percent in FY2019/20 With 2020 poised to be an exceptionally strong year for to about 16.5 percent in FY2020/21 and 16.2 percent in agricultural output (benefiting from a rebound from the FY2021/22. However, public spending is expected to grow 2019 drought), risks to agriculture output projections for in line with inflation and real growth escalators. Expenditure 2021 are skewed somewhat to the downside even in the is projected to increase from 25.2 percent in 2019/20 to absence of major shocks. about 26.0 percent in 2020/21 and decline to 23.7 percent November 2020 | Edition No. 22 23 The State of Kenya’s Economy 2.2.2. Delayed availability of vaccines, and prolonged would lead to further accumulation of domestic and social distancing and other needed COVID-19 external public debt, intensifying Kenya’s external debt countermeasures, could undermine the projected vulnerabilities, crowding out private sector investment, recovery in economic activity. Despite the partial and elevating the feedback loop between the health of reopening of the economy, social distancing measures public finances and the financial sector. While government are expected to remain in place until vaccines or more is committed to medium-term fiscal consolidation, this effective therapeutics are available. Delayed vaccine may face challenges, including from the political cycle availability could undermine rapid and full recovery, and if (with national elections due in 2022), and contingent government has to manage any subsequent re-emergence liabilities which may crystallize, for example due to the of infections and extend support to vulnerable households negative impact of the COVID-19 crisis on the balance and firms, this could lead to fiscal slippages. sheets of major state-owned enterprises. 2.2.3. Re-occurrence or failure to contain the 2.2.5. Although risks to the outlook are skewed to the pandemic globally constitutes an external risk to Kenya’s downside (motivating the inclusion of projections under recovery in the medium term. A more prolonged than a more adverse scenario), upside risks to the projections anticipated pandemic and global economic recession can also be identified. If community transmission of the would weigh on Kenya’s export earnings, including from novel coronavirus slows more quickly in Kenya, including the important tourism sector. The baseline assumes because of the earlier application of vaccines, the economy containment of the pandemic domestically and globally in could rebound more rapidly in 2021, and growth could the medium term. A re-emergence of the pandemic before exceed projections. As pandemic-related uncertainty vaccines become widely available could be followed dissipates, household and business confidence may stage by more stringent measures, such as renewed travel a rapid recovery, and drive stronger-than-anticipated restrictions, that would slow the economies of Kenya’s key growth in consumption and investment expenditure, trading partners and tourism markets. benefiting from pent-up demand and the initiation of delayed projects. Similarly, a more rapid economic recovery 2.2.4. The continuation of large fiscal deficits in in Kenya’s key international trading partners could fuel a the medium term would constitute a risk to Kenya’s more rapid than expected rebound in goods exports and macroeconomic stability and growth. If the fiscal tourism, boosting GDP growth in 2021. imbalance is not reduced in the coming years, this 3. Policy Discussion 3.1.1. As Kenya navigates the pandemic and 3.1. Strengthen the capacity of Kenya’s associated uncertainty, the government should remain healthcare system by advancing critical focused on supporting a resilient economic recovery, reforms and promoting access to creating jobs for the youthful population, and reducing healthcare poverty and inequality. Policymakers should take 3.1.2. The COVID-19 pandemic has shone a spotlight actions to combat the near-term recession and revive on the healthcare sector and elevated the agenda to the economy’s productivity, creating the conditions for strengthen the quality of and access to health services a resilient and inclusive recovery. The analysis in Parts in Kenya. The crisis has made it more critical and urgent I and 2 of this update aim to inform the policymaking to strengthen the capacity of the healthcare system to process in help containing the crisis, to restore growth by handle infections, continue with mass testing, support reigniting the private sector’s contribution, and to maintain self-isolation, protect the most vulnerable (those with macroeconomic stability. Priority policy messages are underlying critical health issues), and meet the rising synthesized in the summary matrix below. demand for healthcare (including, critically, the supply 24 November 2020 | Edition No. 22 The State of Kenya’s Economy of safe blood). As the crisis abates and focus turns to a 3.1.4. Maintain focus on the goal of achieving sustainable health provision model, Kenya will need to Universal Health Coverage (UHC) as part of the “Big 4” enhance its existing institutional setup for monitoring and agenda. This includes adopting a health financing model responding to communicable disease outbreaks. whereby all Kenyans would be covered by the National Health Insurance Fund (NHIF). This requires reforms to 3.1.3. In Part 2 of this update, it is shown that access to NHIF to strengthen its systems and capacity, especially healthcare has been significantly impeded. Policymakers in the areas of costing benefit packages and provider could ensure access to safe healthcare for non-COVID-19 payment mechanisms and to address outstanding related health concerns and help reduce the long-term issues regarding the flow of funds to counties and public impact of the pandemic on health outcomes. To limit facilities, and their earmarking for use in the health sector. a rise in long-term health problems due to inadequate Although the 2010 Constitution establishes healthcare preventative care and treatment during the pandemic, services as a devolved function, the legal framework to healthcare facilities not being utilized for COVID-19 should effectively guide healthcare financing and service delivery be made available to treat non-communicable diseases at the county level has lagged, leading to a lack of clarity like cancer, cardiovascular disease and diabetes (while and transparency in the use of funds, inefficiencies, and maintaining anti-coronavirus protocols). Clear information increasing contestation. The following is a summary regarding the health facilities that treat COVID-19 as of policy actions to deliver the above changes with opposed to those that do not can help the population suggested sequencing: select facilities and seek timely medical attention. Recommendation Comments/Explanation Sequencing Strengthen the The health sector, at the front line of the pandemic, requires continued support: Short-term capacity of the • Allocate sufficient resources to the health sector (for personnel, medical supplies, hospital healthcare system beds, and medical equipment). Create the fiscal space by deferring and postponing low- to handle COVID-19 priority spending. infections, continue • Continue with mass testing, supporting self-quarantine (especially for individuals who with mass testing, cannot isolate at home without risk of infecting others), protect the most vulnerable support self-isolation, groups (those with underlying medical conditions and the elderly). and protect the most • Ensure access to safe healthcare for non-COVID-19 related health concerns, by assigning vulnerable. adequate resources to these areas (including non-communicable diseases like cancer, cardiovascular disease and diabetes). Address critical Health reforms supporting resilience recovery post-COVID-19: Short- to medium- pandemic • Undertake improvements to legal frameworks for the supply of critical healthcare term (6 to 12 preparedness gaps (including blood) by adopting the blood transfusion bill. months) and strengthen service • Review the legal frameworks and establish institutional reforms that consolidate existing delivery, and the but scattered public health emergency preparedness to strengthen institutional capacity equity and efficiency so that it can better anticipate and respond to future communicable disease outbreaks. of healthcare • Put in place a sustainable financing framework for UHC by reviewing the NHIF’s operational financing. mandate to align with the UHC agenda (as a social health insurance provider) and address transparency, administrative and governance challenges. November 2020 | Edition No. 22 25 The State of Kenya’s Economy 3.2. Continue to assist the most vulnerable in reintegrating the jobless into meaningful work. A large households, and help those who have segment of the population has been pushed below the lost jobs seek new employment by poverty line (as discussed in Part 2 of this update) and will scaling and sustaining available social require continued support to afford basic items such as protection programs food, housing, and general upkeep. Expanding available 3.1.5. The hardship from the crisis disproportionately schemes and reaching these groups through cash transfers befalls the poorest and the most vulnerable groups in remains crucial in the near to medium term. The following Kenya. There is considerable uncertainty around the extent are some specific policy reforms to further scale-up support of re-merging spikes in infections and a longer lead time for the most vulnerable households: Recommendation Comments/Explanation Sequencing Expand available cash • Revamped, sizeable, well-targeted, and time-bound cash-transfer programs for the most Short-term transfer schemes to vulnerable households and those falling out of work. cover more vulnerable • A review of the existing schemes, such as NSNP, to see if they can be scaled-up to support a households. greater number of poor households and target more of the urban poor and other counties not in the current scheme. • Fiscal space for these initiatives could be created from reprogramming available donor support and reprioritizing the capital and operations budget. Retrain and reskill the • Because workers in hard-hit contact-intensive sectors are susceptible to lay-offs, a Short- to medium- large pool of recently retraining and reskilling program would help them plug into other sectors as the economy term (6 to 12 laid-off workers reopens. months) and job-seeking • Nonetheless, because the transition could take time, displaced workers will require graduates, and to extended income support as they undergo training and search for new jobs. This also the extent feasible, applies to the large pool of recent graduates who are yet to be gainfully employed. enable absorption into new jobs in less impacted sectors, and provide access to entrepreneurship opportunities. 26 November 2020 | Edition No. 22 The State of Kenya’s Economy 3.3. Supporting firms’ liquidity, reconnecting implement similar solutions, given limited fiscal space and them to markets, and creating jobs a high degree of informality. Considering the measures 3.1.6. Firms need support to reconnect to markets, already taken by the GoK to support firms’ liquidity (tax access financing, and repair their cashflows and balance relief, expediting VAT refunds and accelerated clearance sheets. High-income countries have put forward generous of government arrears), this update identifies broad stimulus packages to support firms and protect jobs areas to restore firm productivity, increase access to (through schemes such as employment guarantees, financing, support integration to regional and Global wage subsidies, working capital financing, balance sheet Value Chains (GVCs), and foster a business environment and debt service relief ). However, low- and middle- that encourages innovation and growth to adapt and income countries such as Kenya lack the resources to generate needed jobs. Recommendation Comments/Explanation Sequencing Access to finance • Targeted liquidity support to firms in sectors considered contact-intensive and with strong Short-term (credit) and targeted links to the informal sector. liquidity support • Provision of lines of credit to basic micro finance institutions (MFIs) and Savings and Credit Co-Operative Societies (SACCOs) to support MSMEs. The operationalization of the CGS will fill a critical need and its scale-up to cater for likely increased demand could be considered. • Additional liquidity support to reduce payment risks and supply risks (including trade finance facilities) to MSMEs and large-scale businesses through commercial banks could also play a role. Creating a conducive • Address connectivity and physical infrastructure gaps; ease mobility within cities to Short- to medium- business environment support normalization of economic activity. term (6 to 12 that encourages • Minimize cash-based transactions, address often large information gaps facing MSMEs months) private sector that make it hard to graduate to access credit and other business products. innovation and • Address the problem of delayed payments in both the public and the private sector (where growth to generate large buyers may delay payment to small suppliers beyond 90 days). Similarly, delays in needed jobs, and public payments (including VAT refunds) affect private sector liquidity and profitability. continuing to progress on the medium-term Maintaining line of sight to reform priorities that would support the recovery and help to move reform agenda to lift the economy to a higher sustainable growth path. For example: productivity • Land: The review of the National Land Policy 2009 is due after 10 years of implementation. Such review is intended to assess where and how the policy could be revised/updated to unlock some of the bottlenecks to further enhance land management in Kenya, its easement for private sector development and towards lifting investment and achieving the Big-4 priorities. Support firms’ • Facilitate faster cross-border trading given that, clearance times for import and exports can Short- to medium- integration with still be lengthy. Cross-border mobility of persons could also be increased. term (6 to 12 regional and global • Support Kenyan firms to plug into regional and global value chains (GVC), notably in months) value chains agriculture, manufacturing, and ICT. • Facilitate access to intermediate inputs and consider measures to attract FDI to sectors. November 2020 | Edition No. 22 27 The State of Kenya’s Economy 3.4. An accommodative monetary policy as economic conditions evolve, would provide more stance and supportive fiscal interventions liquidity support to banks that are likely to be affected 3.1.7. Monetary policy can continue to cushion the by deterioration of credit quality, while at the same time economy. Following pronounced disinflation during the facing urgent demand for credit from SMEs and other course of 2020, and given that a large negative output firms, including as the economy re-opens. gap has opened up as economic activity has fallen well below sustainable levels, there is room for continued 3.1.8. Enhanced bank supervision, considering accommodative monetary policy. Already, cuts in the increased loan quality challenges. At the aggregate CBK’s policy rate (by 125bps to about 7 percent in April- level, Kenya’s banking system is well-capitalized, liquid Oct), a reduction in the cash reserve ratio (by 100bps to and relatively profitable. However, the COVID-19 crisis 4.25 percent in April 2020) and the tripling of the allowable has exacerbated pre-existing asset quality challenges, tenor of liquidity-injecting reverse repo instruments have increasing NPLs. Almost 40 percent of bank wide loans buoyed liquidity in the financial system. Maintaining have been restructured to support borrowers (MPC press accommodation, with adjustments as appropriate statement-October). Recommendation Comments/Explanation Sequencing Monetary policy • With core inflation low and a large negative output gap, there is scope for the CBK to Short-term should continue to maintain an accommodative monetary policy stance, transmitted through the policy rate help cushion the and other available instruments. economy in the face of the COVID-19 shock Enhance bank • Enhance bank supervision, considering increased complexity and the need for loan Short- to medium- supervision, restructuring term (6 to 12 considering increased months) complexity and the need for loan restructuring 28 November 2020 | Edition No. 22 The State of Kenya’s Economy 3.1.9. Fiscal policy faces the challenge of balancing relief and the weakening in economic activity), and an the need to combat the pandemic and its negative increase in COVID-related spending needs, the fiscal economic effects, with maintaining the focus on deficit has widened, and debt vulnerabilities have risen. achieving fiscal consolidation over the medium- Recommended responses include: term. With a sharp decline in tax revenues (due to tax Recommendation Comments/Explanation Sequencing Fiscal policy must • In the near term, tax and spending measures should continue to support the healthcare Short-term balance the need to system, protect the most vulnerable households, and support firms’ liquidity. combat the pandemic • Creating fiscal space to fund these critical interventions could be supported through and its negative potential quick wins in areas such as: economic effects, with (i) Reprioritization of the large ongoing public investment portfolio to create space for maintaining the focus new, cleaner, greener, and impactful projects that could help create jobs; on achieving fiscal consolidation over the (ii) Prioritization of other measures to cut wasteful expenditures and increase the medium-term. efficiency of spending, for example by strengthening public wage bill management. (iii) Taking advantage of debt service relief to free up liquidity that would otherwise be absorbed by debt service. • Clear pending bills and expedite VAT refunds. These measures can be critical to support firm cashflow by reducing the payment cycle within which vendors who supply government receive their payments. This would also support more efficient business to business transactions, and confidence across the economy. As conditions • Revenues: normalize tax rates (back to their pre-crisis levels). In addition, there remain Short- to medium- allow, policy should significant domestic revenue mobilization performance gaps, which could be closed, term (6 to 12 progressively prioritize including through revenue policy reforms such as assessing the appropriateness of months) reducing the fiscal tax rates (which maintaining their progressive structure), and strengthening revenue imbalance and administration (e.g., through measures to tighten compliance). help reduce debt • Expenditures: scrutinize the large and fragmented public investment portfolio with a view vulnerabilities and to prioritizing high-impact projects and unlocking committed development partner funds; reduce wastages strengthen assessment criteria for including new projects in the budget and enhance the in its procurement monitoring and evaluation processes for ongoing projects. processes. • Debt management: actions to reduce cost, such as prioritizing the use of concessional funding, and steps to reduce risks (such as by strengthening the domestic yield curve and lengthening maturities). • Debt transparency: maintaining progress to enhance debt transparency and increase the information available to the investor base involved in Kenya’s increasingly large and complex debt portfolio. • E-procurement: Expedite the approved the e-GP policy framework, which includes e-GP (i) Strategy (ii) implementation Roadmap (iii) e- procurement business model and (iv) e-GP Business processes and specifications. November 2020 | Edition No. 22 29 SPECIAL FOCUS Special Focus THE SOCIOECONOMIC IMPACT OF THE COVID-19 PANDEMIC Photo: © Festo Lang | World Bank November 2020 | Edition No. 22 31 Special Focus 4. The Socio-Economic Impact of the COVID-19 Pandemic 4.1. Introduction well as the direct impact of the lockdown on other sectors 4.1.1. The COVID-19 pandemic reached Kenya in was felt across Kenya’s economy. Households lost work and March 2020, and until now it has most severely affected income deteriorating their livelihoods. Often unprotected Nairobi and Mombasa. Kenya reported its first case of by social safety nets, households struggled to compensate COVID-19 on March 13th, and by September November for the immediate and heavy losses. 2020 the number of reported cases had reached more than 57,000. Of these patients, 37,846 have recovered, while the 4.1.4. The government’s immediate mitigation total number of recorded deaths from COVID-19 is 1,039. actions have included a range of measures focused on Although most counties have reported at least one case, strengthening the health system and delivering direct almost three quarters of the reported infections are in assistance to households. Authorities have provided in- Nairobi and Mombasa.12 kind assistance including soap and food aid, mainly in Nairobi’s poorest areas, complemented by assistance from 4.1.2. In response to the outbreak, the GoK swiftly the UN World Food Program.13 Similarly, cash transfers introduced a range of containment policies. On March have been delivered via mobile payments to households 15th all schools and other educational institutions were in low-income informal settlements in Kenya’s urban mandated to close, public and private sector workers centers.14 While schools remain closed, the Kenya Ministry were directed to work from home wherever possible, of Education shared guidelines for enhancing teaching and social and religious gatherings were banned. and learning through four main platforms: (i) daily radio Cashless transactions were encouraged, while hospitals programs, (ii) education television broadcasts, (iii) KICD’s and shopping malls were required to provide soap and EduTV Kenya YouTube channel, and (iv) digital learning water as well as hand sanitizers. A nationwide curfew resources from the Kenya Education Cloud.15 was introduced, followed by restaurants being restricted to takeaway services only and bars being forced to close. 4.1.5. A series of tax relief measures were enacted to Entry into Kenya was limited to citizens and residents, help lessen the immediate financial burden on Kenya’s with quarantine required for 14 days. International flights citizens and businesses.16 The Tax Law (Amendment) Act were banned, and although they resumed on August 1st 2020 went into effect on April 25th. Tax measures include travelers require a negative COVID-19 test to enter the a reduction of the VAT rate from 16 percent to 14 percent, country. Movement in and out of Nairobi Metropolitan a reduction of the top personal income tax rate from 30 Area, Mombasa, Kilifi, Kwale and Mandera was restricted percent to 25 percent, a reduction of the turnover tax rate from April until early July. As of September 2020, hotels for micro, small and medium enterprises from 3 percent to can sell alcohol, but restaurants are mandated to close by 8 1 percent, and 100 percent tax relief for persons earning p.m. and must not sell alcohol until the end of the month. up to KSh 24,000 (or US$ 225) per month. In addition, the Bars remain closed until further notice. government enacted a temporary suspension of the listing of loan defaulters for any person, micro, small and medium 4.1.3. The containment policies as well as a general enterprises, and corporate entities whose loan account freeze in international travel heavily affected businesses were in arrears as of April 1st. and households in Kenya. The lockdown led to closures of bars and reduced business for restaurants while hotels 4.1.6. The GoK also implemented additional economic suffered from the absence of international and domestic support measures.17 A CBK order for banks to waive fees for tourism. The heavily reduced business in these sectors as individuals who move money between their bank account 12 National Emergency Response Committee on Coronavirus, “Update on COVID-19 in the Country and Response Measures, as at September 6th, 2020.” 13 World Food Programme, “WFP Supplements Government Support to Poor Families in Kenya Hit by COVID-19.” https://www.wfp.org/news/wfp-supplements-government-support- poor-families-kenya-hit-covid-19 14 Capital News, “250,000 Households Identified For Cash Support In The Wake Of COVID-19.” https://www.capitalfm.co.ke/news/2020/05/250000-households-identified-for-cash- support-in-the-wake-of-covid-19/ 15 World Bank. “How Countries Are Using Edtech (Including Online Learning, Radio, Television, Texting) to Support Access to Remote Learning during the COVID-19 Pandemic,” 2020. https://www.worldbank.org/en/topic/edutech/brief/how-countries-are-using-edtech-to-support-remote-learning-during-the-covid-19-pandemic. 16 KPMG. “Kenya: Government and institution measures in response to COVID-19.” https://home.kpmg/xx/en/home/insights/2020/04/kenya-government-and-institution-measures- in-response-to-covid.html 17 KPMG. “Kenya: Government and institution measures in response to COVID-19.” https://home.kpmg/xx/en/home/insights/2020/04/kenya-government-and-institution-measures- in-response-to-covid.html 32 November 2020 | Edition No. 22 Special Focus and mobile wallet came into effect on March 17th. The a range of topics including firm operating status, real and upper limit for mobile money transfers has been increased. predicted sales, employment adjustments, cash flow, Authorities reached a deal with commercial banks to operating costs, and government assistance. restructure nonperforming loans caused by COVID-19 layoffs. Additionally, loans and grants are available through (i) Impact of the crisis: operations, sales, and government and private funds including the National employment Business Compact on CoVid19 (NBCC), as well as special 4.2.3. More than one third of all firms surveyed were loans through Stanbic Bank and Standard Chartered Bank, temporarily closed or only partially open. More than half among others. The GOK also disbursed KSh 1 billion for of the firms were fully open and one in ten was partially the health care sector and US$5 million for the tourism open at the time of survey (Figure 40). Firms based sector. In addition, the International Finance Corporation in Nairobi are more often fully open as compared to disbursed a US$50 million loan to the Equity Bank Kenya to firms in other regions and are less often mandated support SMEs. to close temporarily.19 Considering firms by size, large firms (100+ employees) were most likely to remain open, 4.1.7. Having access to timely data on the whereas micro-sized firms (0-4 employees) are much socioeconomic impacts of COVID-19 is essential for more often closed by choice. Moreover, the pandemic is making effective policy decisions. Without the benefit disproportionally affecting businesses with a large female of accurate data, it is very challenging to effectively and employment share. Firms in which more than half of efficiently allocate resources to populations with the employees are female are 18 percentage points less often greatest need. In the context of the COVID-19 pandemic, open than firms with less female employment.20 face-to-face surveys are no longer feasible due to the risk of infection as well as mobility restrictions. However, 4.2.4. The pandemic is affecting some sectors of phone surveys are highly suitable for rapid data collection, the economy stronger than others. The majority of especially in quickly-evolving situations with risks of agricultural and manufacturing firms have been able to contagion such as the COVID-19 pandemic. remain open (Figure 40). Within the service sector there are large differences in the operating status of firms. 4.2. Impact on the private sector As the government mandated schools to close almost 4.2.1. The economic and social disruptions arising all enterprises in education are closed temporarily.21 from the COVID-19 pandemic are creating multiple Furthermore, the pandemic is affecting firms in particular challenges for the private sector. Firstly, firms are facing in the accommodation and food service sectors.22 They lower demand due to reduced consumption and demand are much less often fully open and more often closed by for inputs. Secondly, supply chains are disrupted, limiting access to intermediate goods, labor and sales channels. Figure 40: Firm operating status Thirdly, access to cash and credit is deteriorating. Lastly, 100 uncertainty is dampening prospects for investment and 80 innovation. Firms in Kenya are facing all of these constraints 60 Percent with its implications for households’ livelihoods. 40 20 4.2.2. The World Bank’s COVID-19 Business Pulse 0 Agriculture/ mining Manufacturing Retail/ wholesale Tourism Other services Other regions Nairobi Micro (0-4) Small (5-19) Medium (20-99) Large (100+) Below 50% Above 50% Survey (COV-BPS) provides timely and accurate information to help policymakers monitor the effects of the pandemic on businesses. The COV-BPS was carried Female out in parallel to the COVID-19 RRPS for households, and Sector Region Size employment Open Partially open (mandated) Temp. closed (mandated) phone interviews were conducted with firms between Temp. closed (own choice) Perm. closed June 10th and August 30th 2020. The questionnaire covered Source: Kenya COVID-19 BPS (2020) 18 The sample consists of 2,070 firms, based on the universe of firms observed in the 2017 Census of Establishments from KNBS. The sample was stratified by firm size, sector, and region. 19 Being closed by mandate refers to government regulations which ordered firms to close temporarily. 20 The median share of female employment is 35 percent. In roughly 20 percent of firms more than half of employees are female. 21 See Kenya COVID-19 BPS (2020). 22 The accommodation and food services sectors are combined in the tourism sector. November 2020 | Edition No. 22 33 Special Focus Figure 41: Change in sales a) Change in sales b) Average change in sales -51 Other services 63 Tourism Sector -52 Retail/ wholesale -51 Manufacturing 93% 2% -43 Agriculture/ mining 5% -42 Large (100+) -45 Medium (20-99) Size -53 Small (5-19) -53 Micro (0-4) -80 -70 -60 -50 -40 -30 -20 -10 0 Increase Remain the same Decrease Source: Kenya COVID-19 BPS (2020) Note: The figure displays predictive effects of firm size and sector on sales, controlling for observable characteristics mandate than firms from other sectors. Moreover, the 4.2.7. One in three workers are employed by firms transportation and storage, as well as accommodation and facing high levels of vulnerability. Firms are defined as food service sectors have a relatively large share of firms vulnerable if they are partially open or temporarily closed, being only partially open by mandate. This reflects curfews as they could potentially run into liquidity problems and and lock-down restrictions primarily affecting firms of have to close permanently. 48 percent of workers in small these sectors. firms and 50 percent of workers in medium-sized firms were employed by vulnerable firms, compared with only 4.2.5. Almost all firms experienced a decline in sales, 26 percent of those working for large firms. There is also a with sales dropping by half on average. 93 percent large variation of vulnerable firms between sectors. More of firms report a reduction of sales in the last 30 days than half of jobs are vulnerable in the tourism sector, compared to the same period in 2019, while only 2 percent compared to 8 percent in manufacturing firms. Moreover, report an increase (Figure 41). The mean decline in sales more workers in firms with a larger female workforce are is 51 percent, while for the median firm they dropped vulnerable than in firms with a larger male workforce. by 50 percent. A quarter of firms saw sales drop by 70 Despite only 1 percent of workers being in permanently percent. The decline in sales was highly heterogeneous – closed firms, it is concerning that such a large proportion sales declined by 90 percent for the bottom 10 percent of of workers are employed by vulnerable businesses. In firms, while sales declined by just 10 percent for the top 10 addition, workers in larger, less vulnerable firms still faced percent of firms. Large firms fared better than smaller firms, increased risks of reduced earnings or being laid off. with no drop in sales reported at the 90th percentile of the Figure 42: Margin of adjustment in employment large firms. Firms in the accommodation and food sectors experienced the largest decline in sales. 25 20 4.2.6. Labor adjustments have taken place at both the Percent of rms extensive (e.g. layoffs) and intensive (e.g. reduced wages 15 and hours) margins, but have so far been relatively 10 modest given the large decreases in revenue for firms. More than one in five businesses in Kenya laid off workers. 5 Labor adjustments on the intensive margin were smaller 0 on average; relatively few firms reduced the working hours Hired workers Fired workers Granted Granted leave of of absence Reduced wages Reduced hours absence with pay leave worked of at least one employee (12 percent), reduced wages (8 Note: Fraction of businesses reporting at least one employee in each category; excludes businesses that are permanently closed. percent) or granted a leave of absence with or without pay Source: Kenya COVID-19 BPS (2020) (5 and 11 percent respectively) (Figure 42). Note: Share of businesses reporting at least one employee in each category; excludes businesses that are permanently closed. 34 November 2020 | Edition No. 22 Special Focus (ii) Transmission channels, liquidity, and survival 4.2.9. Under the circumstances prevailing at the time 4.2.8. The COVID-19 pandemic has affected firms of the COV-BPS, the median firm was able to remain open through a range of transmission channels. Around for five months and could cover costs with available two-thirds of firms state decreases in demand, cash flow cash for about four weeks. On average, a firm in Kenya and available finance, while 62 percent of firms lament a can remain open for 18 weeks. The median firm can remain decrease in hours worked and 54 percent of firms noted a open for 20 weeks, indicating little variation between firms decrease in the availability of inputs (Figure 43). The different (Figure 44a). Larger, more matured and manufacturing firms, transmission channels are affecting different types of firms report a larger number of weeks they can remain open under in similar proportions. Medium-sized firms are the least the current circumstances. Larger reserves or better access often affected by any of the shock transmission channels. to credit could make them more resistant than smaller firms. The pandemic hits firms in other services and tourism While Kenyan firms are able to continue to cover costs for 47 mostly through changes in working hours. Exporting days on average, the median firm can cover costs only for firms are more often affected by a lower availability 30 days (Figure 44b). The large difference suggests a large of inputs. When controlling for observable firm variability in cash availability. Firms in the tourism sector can characteristics, a significant effect of the reduction cover costs for the shortest time-period. in cash flow on sales becomes evident in the manufacturing sector. Therefore, access to finance (iii) Firms’ responses might be vital for the survival of manufacturing firms. 4.2.10. In response to the COVID-19 outbreak, close Decreases in demand have a larger impact on sales of to half of firms are starting to use or are increasing the retail firms. use of digital platforms. More firms are investing in digital Figure 43: Share of firms affected by different transmission platforms (49 percent) than they are investing in software channels or digital equipment (13 percent), changing their product 80 mix (18 percent) or increasing working from home (12 64 66 62 64 percent) (Figure 45). Larger firms more often increase the 60 55 use of digital platforms. For firms in the tourism sector digital platforms are less often an opportunity. Exporting Percent 40 firms and firms in agriculture are less likely to repackage their product mix, most likely because they cannot quickly 20 adjust their products to shifts in demand. Large firms are more likely to use digital platforms for supply chain 0 Decrease in Decrease in Decrease in Decrease in Decrease in management, marketing, sales, payments or service hours worked demand cash ow available availability of nance inputs delivery than smaller firms. In turn, younger firms more often make use of supply chain management, marketing, Source: Kenya COVID-19 BPS (2020) and payment methods than established firms. Figure 44: Share of firms affected by different transmission channels a) Number of weeks that business can remain open b) Number of days a business can cover costs in current circumstances with available cash 25 50 47 20 20 18 40 30 15 30 10 20 5 10 0 0 Average Median Average Median Source: Kenya COVID-19 BPS (2020) Note: The number of weeks a firm can remain open and the number of days a firm cover costs are winsorized at the 99 percent level, to account for outliers November 2020 | Edition No. 22 35 Special Focus Figure 45: Business responses to the COVID-19 shock about the next six months. Firms anticipate employment to decline at a slightly lower rate than sales (Figure 46). 60 49% 50 (v) Access and need of assistance 40 4.2.12. One in five firms in Kenya has received public support during the COVID-19 pandemic. Firms based in Percent 30 Nairobi have more often received assistance than firms 18% 20 in other regions (Figure 47a). Compared to larger firms, 13% 12% 10 smaller firms less often report having received government assistance. Firms in agriculture and in social services 0 Increased use Investment in Repackage Increased working on average most often received assistance, though the of digital platforms digital solutions product mix from home differences are not statistically significant. Of the firms Source: Kenya COVID-19 BPS (2020). Note: Question was not asked to micro-sized firms getting assistance, close to 36 percent received cash transfers and one third received tax deferrals (Figure 47b).23 (iv) Expectation and uncertainty Information gaps are the main reason for not receiving 4.2.11. Firms expect sales to continue to contract public support. While 27 percent of large firms got sharply. On average, Kenyan firms expect sales to decrease assistance, only 16 percent of micro-sized entities report by 26 percent in the next six months compared to the to have had access to assistance measures. Four out of five previous year. Almost all firms expect sales to decline, firms report not having received assistance because they while few firms expect an increase in sales. Large firms and were not aware of any government programs. firms in agriculture and manufacturing are more optimistic Figure 46: Expectations and uncertainty about sales and employment a) Expectations and uncertainty about sales growth b) Expectations and uncertainty about employment growth for the next six months for the next six months 15 12 10 8 10 5 5 0 0 -5 -5 -10 -10 -15 -15 -20 -20 -25 -20 -30 -27 -25 Average employment Average employment Average expectation Average std. dev. expectation std. dev. Source: Kenya COVID-19 BPS (2020) Figure 47: Share of firms that received any assistance and type of assistance received a) Expectations and uncertainty about sales growth b) Expectations and uncertainty about employment growth for the next six months for the next six months Other Nairobi 25% Region Wage subsidies Other regions 18% Tax deferrals Large (100+) 27% Fiscal exemptions or reduction Medium (20-99) 26% Loans with subsidized interest rates Size Access to new credit Small (5-19) 19% Deferral of credit payments/ suspension of interest payments Micro (0-4) 17% Deferral of rent/ mortgage/ utilities All 20% Cash Transfers 0 10 20 30 0 10 20 30 40 Percent of rms Percent of rms Source: Kenya COVID-19 BPS (2020) 23 Within the other assistance” measure, firms most often state the provision of sanitizers and masks. 36 November 2020 | Edition No. 22 Special Focus 4.2.13. The most needed policy response according to 4.3.2. A rapid response phone survey targeting Kenyan firms is loans with subsidized interest rates, but households in Kenya provides timely data to assess the responses showed some heterogeneity across firm size. economic and social impacts of COVID-19 on household. 42 percent of firms in Kenya call for monetary transfers from In collaboration with the Kenya National Bureau of the government and one quarter call for tax deferrals, while Statistics (KNBS), the United Nations High Commissioner half of firms refer to loans with subsidized interest rates as for Refugees (UNHCR) and researchers from the University one of the three most needed policies (Figure 48). The of California, Berkeley, the World Bank has been most-needed type of assistance however varies with firm implementing the Rapid Response Phone Surveys (RRPS). characteristics. For instance, exporters disproportionately The Kenya COVID-19 RRPS for households is structured as a demand tax deferrals. This could either reflect higher tax three-wave bi-monthly panel survey that targets nationals, and custom duties or the fact that exporting firms do not refugees and stateless people. While the sample was face liquidity constraints or lack of credit, and therefore are designed to be approximately nationally representative, calling for other policy measures. Agricultural firms and some limitations remain as the phone surveys could firms in retail are most likely to request monetary transfers. only reach households with a valid phone number (see Firms in the tourism and manufacturing sectors are more Technical Annex for more details). The questionnaire covers likely to call for loans with subsidized rates, indicating a range of topics including employment, income, coping liquidity constraints.24 strategies, food security, access to education and health Figure 48: Self-reported most needed public policies to support services, subjective wellbeing, knowledge of COVID-19, businesses changes in behavior in response to the pandemic, and 60 perceptions of the government’s response.25 40 (i) Livelihoods impacts, coping strategies and Percent food insecurity 4.3.3. Unemployment has almost doubled compared 20 to its pre-COVID level. The negative impact of COVID on the private sector has trickled down to household’s 0 Cash Deferral Deferral Access Loans Fiscal Tax Wage Other welfare via reduced jobs opportunities and lower earnings. transfers of rent/ of credit to new with exemptions deferrals subsidies mortgage/ payments/ credit subsidized or reduction The unemployment rate increased from 5 percent in utilities suspension interest of interest payments rates the last quarter of 2019 to 21 percent at the beginning of June 2020 (Figure 49).26 The COVID-19 pandemic has Source: Kenya COVID-19 BPS (2020) also moved many adult Kenyans outside the labor force, with the labor force participation rate decreasing from 4.3. Socioeconomic impacts on households 75 percent in the last quarter of 2019 to 61 percent from 4.3.1. Households are affected by the challenges mid-May to early July. This decline is likely due to a subset reported by the private sector as well as additional of workers being discouraged by a lack of available jobs channels of impact. The difficulties of firms in the current or being unable to actively search for work due to the economic context translate into reduced opportunities socioeconomic conditions created by the pandemic. Since and additional risks of livelihoods and food security for January, the largest share of wage workers who lost their households. However, the human capital of households job worked in the services sector, followed by the industry – an essential factor in determining livelihoods – is also and the agricultural sectors. The rise of unemployment and directly affected by COVID-19 by affecting health of the decrease in labor force participation can have severe household members as well as access to education given and long-term consequences on households’ welfare. the closure of schools, for example. 24 See Kenya COVID-19 BPS (2020). 25 More detailed information on the RRPS findings and methodology can be found in World Bank (2020), “Socioeconomic Impacts of COVID-19 In Kenya On Households – Rapid Response Phone Survey Round 1” (forthcoming). 26 While the labor indicators in the phone survey were designed to be comparable with the quarterly labor indicators released by the KNBS, the mode of data collection (phones instead of face-to-face interviews) as well as the selection of the respondents can limit comparability. The presented statistics based on the KCHS data also differ from the official labor force statistics published by the KNBS as the latter uses a different age group (15-64). November 2020 | Edition No. 22 37 Special Focus Figure 49: Unemployment rate (18-64 years) decline in hours worked is to a large extent driven by the 18 13 percent of workers temporarily reducing their hours 16.5 16 to zero, for instance education workers. Hours worked by 14 wage workers in the agricultural sector were more affected 12 than those in the services and industry sectors (Figure 50). % of labor force 10 However, average wages fell significantly in the services 8 sectors, by 26 percent (Figure 51). Wages also decreased 6 5.4 5.2 in the agricultural sector and this may be partly due to 4 seasonal changes, an interpretation that future RRPS rounds 2 will be able to affirm. Wage reductions were less significant 0 for workers who are formally employed compared to Q3 2019 Q4 2019 All KCHS RRPS those informally employed (3 percent versus 32 percent; Source: Kenya COVID-19 RRPS Figure 51). The reduction in earnings was much greater for women who saw a 46 percent decline from KSh 11,688 in 4.3.4. Wage workers – and especially women – who February to KSh 6,369 in May-June (Figure 53). are still employed face a reduction in working hours and earnings. Between February and June, average hours 4.3.5. Almost 1 in 3 household-run businesses are not worked fell by 23 percent among wage workers, decreasing currently operating, with revenues decreasing across all from 50 to 38 hours per week. Women saw a greater decline, sectors.27 30 percent of household-run businesses closed, with hours worked reducing by 30 percent for women with most expecting to re-open again (26 percent) and compared to 18 percent for men (Figure 52). The average relatively few having permanently closed (4 percent). Figure 50: Hours worked for wage workers Figure 51: Changes in wage earnings 70 25,000 60 20,000 50 Hours worked 15,000 40 KSh 30 10,000 20 5,000 10 0 0 All Agriculture Industry Services All Agriculture Industry Services Informal Formal February May/June Earnings Feb 2020 Earnings Now Source: Kenya COVID-19 RRPS Source: Kenya COVID-19 RRPS Figure 52: Change in hours worked, by gender Figure 53: Change in earnings, by gender 60 14,000 50 12,000 10,000 Hours worked per week 40 Earnings in KSh 8,000 30 6,000 20 4,000 10 2,000 0 0 All Men Women All Men Women February May -June February May-June Source: Kenya COVID-19 RRPS Source: Kenya COVID-19 RRPS 27 This includes all non-agricultural household-run enterprises that have been operating since January 2020. 38 November 2020 | Edition No. 22 Special Focus Most businesses that permanently closed are in the 4.3.6. Remittances have fallen, and few households wholesale and retail trade sector (38 percent), education have benefitted from direct cash assistance. Between (36 percent), and other services (15 percent). In both the February and June, the amount of domestic and industry and service sectors, the majority of closures international remittances received by households were due to government mandates (41 percent and 13 decreased by 10 percent on average (about KSh 260), percent respectively; Figure 54). Between February and although rural households actually experienced an June, average revenue from household-run businesses increase (Figure 55). From May to June, only 11 percent of decreased by over 40 percent, falling from KSh 12,892 to households received remittances or assistance from the KSh 7,246. At the current scale of operations and without government, NGOs or politicians.28 The most important any additional assistance or loans, on average businesses source of non-labor income was remittances (7 percent), report they will be able to survive just over a month. followed by government and NGO assistance (3 percent Longer term restrictions to economic activities could and 2 percent respectively). Remittances from abroad therefore have severe consequences for household-run plunged in April and May, but have subsequently businesses and take away an important income source rebounded. Only 10 percent of households suffering for many. Revenue from agricultural activities declined from a reduction in remittances received assistance from by 23 percent between May 2019 and May 2020, while the government or NGOs (Figure 56). Households usually revenue from pastoral activities declined by more than relying on remittances have thus faced an important loss 50 percent. of income.29 Figure 54: Operating status of businesses 4.3.7. Households employed various coping strategies 100 during the crisis, often reducing food consumption. 90 Since the COVID outbreak, a large share of urban and 80 rural households had to reduce their food consumption 70 % of businesses (40 and 38 percent respectively; Figure 57). Additionally, 60 50 many households had to rely on savings or reduce non- 40 food consumption. More than half of households used 30 more than one coping strategy. Rural households used 20 credit purchases more intensively (23 percent) compared 10 0 to urban ones (12 percent) and some sold assets (15 and 11 All Industry Services percent respectively). The latter observation is particularly Open Temp closed Temp closed Permanently closed (Gov mandated) (Own choice) worrying, as the sale of potentially productive assets can Source: Kenya COVID-19 RRPS impact a household’s welfare in the long term. Figure 55: Remittance value in 2-week period for February and Figure 56: Households that received assistance by change in May/June remittances 6,000 30 % of those receiving remittances 5,000 25 4,000 20 KSh 3,000 15 2,000 10 1,000 5 0 0 All Rural Urban Decreased Stayed the same Increased February May/June Change in remittances between February and May/June Source: Kenya COVID-19 RRPS Source: Kenya COVID-19 RRP. Note: Households that received remittances Note: Assistance from government or NGOs. 28 In some areas, politicians deliver gifts such as masks, food stuffs (flour, cooking oil, rice), cash money and branded t-shirts. 29 World Bank (2020). “Kenya Economic Update 21. Turbulent Times for Growth in Kenya. Policy Options during the COVID-19 Pandemic.” November 2020 | Edition No. 22 39 Special Focus Box 5: Youth-led micro-enterprise rapid response phone survey30 Revenues and profits strongly decreased for micro-enterprises run by young entrepreneurs, with only few of them making use of government and NGO support programs. Between February and July, many micro-enterprises run by young entrepreneurs had to temporarily close, with mean sales decreasing from KSh 63,406 in February to KSh 38,167 in May/June and profits reducing by almost 50 percent. Between May and July, just under 40 percent of micro-entrepreneurs were aware of programs for business loans or payment deferral, but only 30 percent of those who applied received assistance. In addition, only less than 10 percent of the young entrepreneurs were aware of other assistance programs from the government and NGOs and almost no entrepreneur made use of them (Figure B5.1). Figure B5.1: Awareness of government or NGO assistance programs. 50 40 % of entrepreneurs 30 20 10 0 Business loans Coverage of employees Coverage of business rent/ Deferral of business rent/ Help with your household’s or payment deferrals wages other expenses other expenses payments consumption Received Applied Aware, not applied Source: Micro-enterprises Kenya COVID-19 RRPS Figure 57: Strategies employed to cope with the impact of the crisis (multiple answers possible) 0 5 10 15 20 25 30 35 40 45 50 No action taken Relied on savings Reduced food consumption Reduced non-food consumption Credited purchases Engaged in additional income generating activities Took a loan from a nancial institution Borrowed from friends & family Sale of assets (ag and no-ag) Received assistance from friends & family Delayed payment obligations Was covered by insurance policy Sold harvest in advance Received assistance from government Received assistance from NGO Took advanced payment from employer Rural Urban Source: Kenya COVID-19 RRPS 4.3.8. Food insecurity in Kenya has been a long-lasting (IPC phase 4).32 Nine percent of those living in Arid and problem that is likely to be exacerbated by the COVID-19 Semi-Arid Lands (ASAL) counties were considered to be pandemic, especially for female-headed households.31 facing a situation of crisis (IPC phase 3) or worse. The RRPS In February 2020, before being impacted by the COVID-19 findings suggest that COVID has aggravated this situation. pandemic, more than a million Kenyans were assessed as During May and June, in 40 percent of households, adults being in crisis with respect to food security (IPC phase 3) skipped meals at least once a week, and in 25 percent and nearly 300,000 as being in an emergency situation of households, children had to do so. Adults went entire 30 A research paper and policy note on the results will be prepared in Q4 2020. The Kenya micro-enterprises RRPS targeted applicants to one of two programs in the Kenya Youth Employment and Opportunities Project of The World Bank. The first program is a Business Plan Competition (BPC) and the second one offers youth a start-up grant and/or Business Development Services (BDS). The programs targeted Kenyans aged 18 to 35 and 18 to 29 respectively, who have or want to start a business, across urban and rural areas. The youth- led microenterprises questionnaire was prepared by Yanina Domenella, Julian Jamison, Abla Safir, and Bilal Zia. The survey was conducted between May 28th and August 4th, 2020. 31 WFP, “Comprehensive Food Security and Vulnerability Analysis (CFSVA) Kenya 2016.” At least 4 million Kenyans faced severe food insecurity before the COVID-19 pandemic. Food security defines a situation in which all people at all times have physical and economic access to sufficient, safe and nutritious food which meets their dietary needs and food preferences for an active and healthy life. 32 Government of Kenya, “IPC Acute Food Insecurity and Acute Malnutrition Analysis, February 2020 – July 2020.” https://reliefweb.int/sites/reliefweb.int/files/resources/IPC_Kenya_ AcuteFoodInsec_Malnutrition_2020FebJuly.pdf 40 November 2020 | Edition No. 22 Special Focus days without food in more than 1 in 10 households, and (ii) Human capital: education, health and children did so in almost 1 in 10 households (Figure 58). wellbeing Female-headed households were more affected. They 4.3.9. Very few children have had access to their were more likely to be worried about not having enough teachers during school closures. Children have had food to eat during the pandemic (70 percent) compared access to their teachers during school closures in only in 1 to male-headed households (66 percent; Figure 59) and in 10 households, with a higher share in urban households more likely to have children going to be bed hungry than in rural ones (21 percent versus 7 percent). The most (20 percent compared to 13 percent; Figure 60). School common ways to reach teachers in rural households were closures have affected households whose children rely on telephone calls (44 percent) and in-person contact (42 school feeding programs, as WFP and the GoK33 Adults in percent). Urban households mainly used telephone calls poor households are the most affected by food shortages, (42 percent), the messaging application WhatsApp (31 with adults going hungry in 59 percent of poor rural percent), and less often in-person contact (24 percent; households, compared with 45 percent in non-poor rural Figure 61). Having limited access to teachers restricts households. The lack of food can directly impact the ability children’s ability to continue their education, thus of adults and children to undertake a normal, healthy and hindering efforts to build and maintain the country’s productive life, thus leading to malnutrition, stunting and human capital. human capital losses. Figure 58: Food shortages. In the past seven days, how Figure 59: Worried about not having enough food to eat in many days have... the past 30 days 45 74 40 72 35 % of households 30 Percent of households 70 25 20 68 15 66 10 5 64 0 Adults Children Adults Children Adults Children 62 …skipped meals …gone to bed hungry … gone entire days 1 2 3 4 5 6 7 without food 60 Number of days All Female-headed Male-headed Source: Kenya COVID-19 RRPS Source: Kenya COVID-19 RRPS Figure 60: Children have gone to bed hungry in the past 7 days Figure 61: Channels for reaching teachers (multiple answers possible) 25 60 % of households with access to teachers 50 20 40 15 30 Percent 20 10 10 5 0 Telephone In Person WhatsApp SMS Online Other (call) Application (incl. Mail, 0 E-Mail) All Female-headed Male-headed Rural Urban Source: Kenya COVID-19 RRPS Source: Kenya COVID-19 RRPS 33 WFP, “Supporting National School Meals Programme in Kenya.” https://www.wfp.org/publications/supporting-national-school-meals-programme-kenya#:~:text=Since%20 1980%2C%20WFP%20and%20the,Kenya%20and%20in%20the%20informal. November 2020 | Edition No. 22 41 Special Focus 4.3.10. Children continue to be involved in educational consequences on the general health of the population and activities in most households, but a substantial share its ability to cope with the crisis. of households report their children were not. Among the multiple learning platforms provided by the Ministry 4.3.12. The majority of Kenyans feel worried about of Education, only radio is being used by a significant the COVID-19 outbreak, mostly out of fear of getting number of students (9 percent in rural areas and 10 infected or losing their employment. In May and June, percent in urban areas). This can be partly explained by 61 percent of Kenyans felt generally nervous or anxious, a lack of televisions, computers or smartphones that are compared to 80 percent of Kenyans who felt nervous or needed to access certain learning resources. Almost 70 anxious due to the COVID-19 outbreak specifically. More percent of households claim their children have been than 1 in 5 Kenyans even reported physical reactions such engaged in some educational activities, with both rural as sweating, trouble breathing, nausea, or a pounding and urban households engaging in learning activities. heart, when thinking about their experience with the The leading educational activity was reading school pandemic, with almost 1 in 10 experiencing these physical textbooks (33 percent), reading for pleasure (17 and 23 reactions on a daily basis (Figure 64). In urban and rural percent respectively) and using self-prepared materials areas, Kenyans were anxious mainly due to the fear of (15 percent and 32 percent respectively; Figure 62). Even themselves or their family members getting infected (77 though the majority of children are reportedly engaged in and 82 percent respectively) and the fear of losing their at least some learning activities, questions remain about employment or business (35 and 46 percent respectively). how rigorously these methods are being applied and their COVID-19 not only has affected physical health, but mental effectiveness as compared to formal schooling. health as well, resulting in psychosis, anxiety, trauma, suicidal thoughts, and panic attacks.34 Moreover, anxiety 4.3.11. Access to healthcare has been significantly and fear can lead to aggression and violence and thereby impeded. 3 in 10 households report less access to increase levels of domestic violence.35 healthcare than before March 2020. In 27 percent of households, members were not able to go to health (iii) Knowledge, behavior and government facilities for routine and prenatal check-ups as frequently perceptions as before (Figure 63). The main reason given for not being 4.3.13. Knowledge has a significant influence on able to go for medical check-ups was fear of getting attitudes and behavior. Lessons learnt from past infected with COVID-19. In addition, about 10 percent pandemics have shown that well-informed individuals of households were unable to buy medicine when are more likely to adopt precautionary practices to needed. The lack of access to healthcare can have severe avoid contagion.36 Furthermore, educating the public Figure 62: Learning activities (multiple answers possible) Figure 63: Ability to go to routine health check-ups as frequently as before March 100 40 90 35 80 30 % of households 70 % children learning 25 60 20 50 15 40 10 30 5 20 0 Reading Reading Materials Use self- Educational Free Other 10 school for prepared prepared radio online 0 textbooks pleasure by school materials educational All Rural Urban videos As frequently as Not as frequently Not able to Rural Urban before March but still able to go go at all Source: Kenya COVID-19 RRPS Source: Kenya COVID-19 RRPS 34 Salari et al. (2020). “Prevalence of Stress, Anxiety, Depression among the General Population during the COVID-19 Pandemic: A Systematic Review and Meta-Analysis.”; WHO, “Mental Health and Psychosocial Considerations during the COVID-19 Outbreak.” 35 National Council on the Administration of Justice, “Statement on Justice Sector Operations in the Wake of the COVID-19 Pandemic.” https://ncaj.go.ke/statement-on-justice- sector-operations-in-the-wake-of-the-covid-19-pandemic/. Domestic violence has sharply increased after the COVID-19 outbreak, and most offences are committed against women and girls. 36 Yap et al. (2010). “Knowledge, Attitudes and Practices towards Pandemic Influenza among Cases, Close Contacts, and Healthcare Workers in Tropical Singapore: A Cross-Sectional Survey”; Tang and Wong (2003). “An Outbreak of the Severe Acute Respiratory Syndrome: Predictors of Health Behaviours and Effect of Community Prevention Measures in Hong Kong, China.” 42 November 2020 | Edition No. 22 Special Focus Figure 64: Subjective well-being. In the past seven days, how many Figure 65: Sources of information on COVID-19 (multiple answers days have you... possible) % of population 90 0 10 20 30 40 50 60 70 80 90 100 80 70 % of population ... felt nervous, anxious, or on edge? 60 50 40 ... felt depressed? 30 20 ... felt lonely? 10 0 National radio Friends, family, colleagues Medical professionals Whatsapp or SMS Newspaper Local radio Other Internat./Gover’t agencies Twitter Billboards, posters Religious leaders Facebook TV News on internet … had physical reactions, when thinking about your experience with the COVID-19 pandemic? Not at all 1-2 days 3-4 days 5-7 days Source: Kenya COVID-19 RRPS. Source: Kenya COVID-19 RRPS. about specific actions that can be taken to reduce risk forward. Communication regarding the health impacts on and communicating about the government’s plans and the pandemic and provision of updated information about resources help to improve compliance with public health safe behaviors can have a positive impact on adherence to directives.37 Thus, knowledge is likely to play a key role in imposed public health measures. controlling the spread of COVID-19. 4.3.16. A high share of the population is satisfied with 4.3.14. Kenyans know about COVID-19 and its the government’s response to the COVID-19 crisis, but symptoms, with the main sources of information being less than half are convinced that the government is able radio and television. Almost the entire population has to provide sufficient cash and in-kind assistance. Most heard about COVID-19 (99 percent) which is consistent Kenyans are satisfied with the government’s response (65 with other countries in the continent.38 Most Kenyans percent), with women slightly more satisfied than men know at least two typical symptoms of COVID-19 (94 (66 percent versus 63 percent). 65 percent of Kenyans percent), with most having been informed about the virus believe that the government is trustworthy in the way it through multiple sources (63 percent). The most common is managing the crisis and 71 percent also believe that sources are national radio (77 percent) and television (51 it can provide health care to address the crisis (Figure percent), but social networks, online and offline, are also 66). Maintaining and increasing the public’s trust in the common information channels (Figure 65). government’s capacity can support confidence about the health information provided, thereby helping to reduce 4.3.15. A large share of Kenyans intend to follow risky behavior and decrease contagion. government directives, but fewer believe that others Figure 66: Trust in the government are following them. Almost everyone reports applying preventive measures, with 99 percent reporting washing % of population 0 10 20 30 40 50 60 70 80 90 100 their hands with soap more often than they used to, avoiding gatherings of more than ten people, and The government is … avoiding handshakes or physical greetings. While reported … trustworthy in the way it manages the Covid-19 crisis compliance with government guidelines seems very high, ... willing to provide health care to 19 percent of the population do not follow such guidelines address the Covid-19 crisis entirely, which can hinder measures to control the spread …. able to provide health care to address of the virus. Less than three in ten households would have the Covid-19 crisis a place to isolate a household member infected with ... able to provide enough assistance in response to the Covid-19 crisis COVID-19. Importantly, only seven out of ten Kenyans Disagree Neutral Agree believe that others are following the guidelines, which Source: Kenya COVID-19 RRPS may impede the adoption of healthy behaviors going 37 Rubin et al. (2009). “Public Perceptions, Anxiety, and Behaviour Change in Relation to the Swine Flu Outbreak: Cross Sectional Telephone Survey.” 38 Geopoll. “Report: Coronavirus in Sub-Saharan Africa.” https://www.geopoll.com/blog/coronavirus-africa/ November 2020 | Edition No. 22 43 Special Focus (iv) Kenya’s refugee population were working (64), considerably lower than the national 4.3.17. Kenya is the second largest refugee-hosting employment rate, with seven in ten persons working country in Africa after Ethiopia, with an estimated during the second half of 2019. After March 2020, while 494,000 refugees, asylum seekers and other persons more than half of the working age population have been of concern.39 Three main locations are hosting refugees working at the national level, the employment rate is only in the country: Dadaab, Kakuma camps and Kalobeyei one in ten persons among the refugee working population settlement. A significant number of refugees also live (Figure 67). elsewhere in the country’s urban areas. Dadaab refugees are located in Garissa County (44 percent) whereas 4.3.20. While inflows of remittances decreased those from Kakuma camps and Kalobeyei settlement are drastically among nationals compared to pre-COVID-19 located in Turkana County (40 percent). Urban refugees levels, they increased massively among refugee mainly reside in Nairobi (16 percent). The majority of the households. Throughout the second quarter of the year, refugee population originates from neighboring countries refugees of different settlements saw at least a fivefold including Somalia (55 percent), South Sudan (24 percent), increase in average remittances. For example, remittances Democratic Republic of Congo (9 percent), and Ethiopia for urban refuges grew from KSh 357 to KSh 3,286 and (6 percent), as well as Sudan and Uganda since 2008.40 for Kakuma refuges grew from KSh 108 to KSh 2,566. Post COVID, refugee households headed by men received 4.3.18. Although the number remains small, COVID-19 more than double the value of remittances received by infections in refugee camps have increased sharply households headed by women. Assistance from NGOs between July and August 2020. The number of COVID-19 is higher among camp-based refugees, with at least 15 confirmed cases in refugee camps and settlements rose percent of households benefitting from this assistance in from 23 cases on July 21st to 115 on August 31st, including Kalobeyei, Kakuma and Dadaab. four deaths and at least 20 recoveries. Dadaab refugee camps have recorded a total of 19 cases with two deaths 4.3.21. Reducing food consumption is the most and 64 people reportedly in quarantine. The number of common coping mechanism for urban, camp-based infections in Kakuma has reached 26 cases, and Garissa refugees, as is the case with nationals. More than half accounted for 9 of the new cases reported in September. (57 percent) of camp-based refugees took at least one action to cope with the spread of the virus. Almost half of 4.3.19. The impact of the COVID-19 pandemic on all refugees reduced their food consumption, while one employment has been severe among the refugee in five of them reduced non-food consumption. Taking population. Prior to the pandemic, almost four in ten out loans is more common among refugees while selling refugees in Kalobeyei and two in ten refugees in Kakuma assets is higher among nationals. Figure 67: Refugee employment rates before and after COVID-19 4.3.22. High food insecurity, already a concern in refugee communities, persists following the COVID-19 90 79 80 71 pandemic. Several contributing factors, including the % of working age population 70 2008 post-election violence and regular droughts in 60 53 Turkana County since 2016, mean that a high proportion 50 43 40 of the refugee population do not have access to sufficient 30 23 22 amounts of quality food. During the seven days prior to 20 12 9 8 11 the survey, more than half (six in ten adults on average) 10 0 of camp-based and urban adult refugees skipped meals Kalobeyei Kakuma Dadaab Urban Shona stateles compared to four in ten adults on average at the national Refugees Nationals level (Figure 68). Before After Source: Kalobeyei SES (2018); Kakuma SES (2019); Shona SES (2019); Kenya COVID-19 RRPS (2020) 39 UNHCR and World Bank. “Understanding the Socioeconomic Conditions of Refugees in Turkana West, Kenya” (forthcoming). 40 UNHCR and World Bank (2020). “Understanding the Socioeconomic Conditions of Refugees in Kalobeyei, Kenya: Results from the 2018 Kalobeyei Socioeconomic Profiling Survey.” 44 November 2020 | Edition No. 22 Special Focus Figure 68: Refugee who skipped meals during the past 7 days 4.3.23. Most refugee children aged between 5 and 17 are still involved in educational activities. Learning 80 69 64 67 activities through which refugee school-age children 70 62 continue to pursue their education mainly include school 60 47 textbooks, reading for pleasure, and prepared materials % of households 50 39 38 39 (between 20 and 40 percent of children for each 40 23 activity). The free online teaching material or mobile 30 16 education videos are, however, used less (almost 5 20 percent) and those involved in this type of activity 10 0 are mostly located in urban areas. In urban areas, Kalobeyei Kakuma Dadaab Urban Shona Locations stateles WhatsApp was the main channel by which refugees Children Adults accessed teachers (four in ten households on average, Source: Kenya COVID-19 RRPS (2020) among both refugees and nationals). The hospitality sector has been hit hard by public health response measures, but activity is resuming gradually Photo: © Festo Lang | World Bank November 2020 | Edition No. 22 45 Special Focus 4.4. Policy recommendations 4.4.1. To help mitigate the adverse impacts of COVID-19 on firms, the COV-BPS suggests policy response options divided into four areas: liquidity, firm capabilities, access to information and targeting. As the crisis continues to evolve, policies must find a balance between short-term interventions to help businesses “keep the lights on” and a sustainable recovery plan that facilitates the selection of the most productive firms. In the recovery phase, policies should be geared towards supporting growth-oriented enterprises, promoting the reallocation of resources to more efficient companies, and avoiding measures that risk propping up “zombie” firms (i.e., inefficient firms that can survive only thanks to the artificial support provided to them).41 4.4.2. Ensure the liquidity of viable firms: A key priority in the short term is to alleviate the restriction of cash flows due to lower demand. Direct measures the government can take to address liquidity pressures may encompass continued efforts to accelerate VAT refunds, and ensure prompt payment of pending bills. Recommendation Comments/Explanation FinTech solutions should Kenya is known for its innovative solutions regarding digital financial services. Digital technology offers an be promoted. unprecedented opportunity to mitigate the impact of the COVID-19 crisis on MSME financing. Simplified loan application processes and the use of alternative data for credit scoring could be leveraged by banks to reduce turnaround times for MSME loans. The efficacy of the The GoK has implemented a package of tax measures, which include reduction of the base corporate income tax emergency tax reduction rate from 30 to 25 percent, cutting the turnover tax rate on small business from 3 to 1 percent, and a decrease and deferral measures of the standard VAT rate from 16 to 14 percent.42 It will be critical to assess the impact of these measures on the should be assessed. robustness of firms as well as on tax revenue, so that evidence-based decisions can be made on when they can be retired. Conditions must be For micro and small businesses, this could mean increasing the debt threshold required for a creditor to initiate established to prevent bankruptcy proceedings against a debtor or limiting access in modern personal bankruptcy systems to a the insolvency of healthy debtor’s petitions alone. Enacting these measures for a fixed time period would prevent the system from firms due to temporary becoming one of debt collection during a pandemic, as well as help control the number of cases entering the illiquidity. overburdened court system. The CBK suspended for six months the listing of negative credit information for borrowers whose loans became non-performing after April 1st.43 These measures need to be reassessed and potentially expanded based on the extent and duration of the COVID-19 crisis, while keeping in mind the risks they present for financial sector sustainability. De-risking financial Risk aversion is an important factor limiting the willingness of financial intermediaries to increase lending, institutions will be particularly to MSMEs. The National Treasury is setting-up a CGS to issue partial credit guarantees on important for increasing commercial bank loans to MSMEs. access to finance for healthy firms. The liquidity constraints Providing liquidity channeled through micro-finance institutions, SACCOS and digital platforms can help address of micro-enterprises the liquidity constraints faced by these institutions and their ability to extend credit to micro and small firms. should be alleviated. Government arrears on This can be accomplished by setting-up a receivables financing platform that would allow financial institutions to payments to MSMEs must refinance these receivables through an invoice and receivables discounting scheme. To give comfort to financial be addressed.44 institutions, the scheme will be supported by the guarantee product. Early-stage companies Public policies to help vulnerable but viable firms stay in business and maintain employment should also should not be left out of include startups. The provision of a cash lump sum for firms to stay afloat could help overcome the immediate safety net provisions. challenges brought on by the pandemic. Keeping this sum reasonably small would make it feasible from a fiscal perspective while ensuring that it is still relevant for startups. If employment retention is crucial to keep the business alive, then an immediate cash injection either through grant or loan or guarantee could be explored. If markets failures are clearly identified, support for publicly funded venture capital companies and funds to inject equity could be explored.45 Loan or equity injections into venture funds can help them survive through the period when they cannot realize any returns and ease the pressure on them to liquidate companies in which they have invested in the short term. 41 This section is based on the COV-BPS results and the overall policy guidance described in World Bank (2020). Assessing the impact and policy responses in support of private-sector firms in the context of the COVID-19 pandemic. 42 IMF policy tracker. https://www.imf.org/en/Topics/imf-and-covid19/Policy-Responses-to-COVID-19. 43 IMF policy tracker. https://www.imf.org/en/Topics/imf-and-covid19/Policy-Responses-to-COVID-19. 44 The government has significant arrears to suppliers and contractors, estimated at 0.7 percent of GDP (~KSh 65 billion) in FY2018/19. Paying arrears will be critical to enhancing firms’ liquidity during the crisis. The GoK has already taken steps and allocated KSh 13.8 billion to clear arrears and KSh 10 billion for VAT refunds as part of its policy responses to the pandemic (World Bank Kenya Economic Update April 2020). 45 For example, France and Germany have a long tradition of using these instruments through state development banks to provide risk capital to MSMEs. 46 November 2020 | Edition No. 22 Policy Options 4.4.3. Enhance firms’ digital capabilities: The pressure to react to the crisis may offer an opportunity to improve overall managerial and digital capabilities throughout firms in Kenya. The COV-BPS results suggest that firms are responding to the crisis with the adoption of digital technologies, which can be useful for improving their overall capabilities. Recommendation Comments/Explanation Facilitating access to Evidence across countries suggests that a large proportion of firms are starting to use or increase the use of digital digital technologies technologies for business purposes. In the case of Kenya almost half of formal firms have not adopted digital can help increase firm technologies in response to the COVID-19 shock yet. Facilitating the adoption of digital technologies that can be efficiency. applied to general business functions such as business planning, marketing, payments, and sales, will be critical for helping firms cope with the COVID-19 crisis and for improving their capabilities going forward. Among the functions with a higher potential for easy adoption are technologies related to supply chain management and sales. 4.4.4. Improve access to information: Evidence for Kenya and other countries suggests that firms are expecting large declines in sales in the coming six months, with a high degree of uncertainty. Information can help firms to access new markets to compensate for loss of sales. In addition, improving access to information about available support for businesses can increase the likelihood of reaching the firms most in need and could help improve expectations overall. Recommendation Comments/Explanation Providing information The variation in the development of the COVID-19 crisis in different countries can generate significant to firms can support variation in how global value chains are disrupted, which can in turn create business opportunities.46 Providing them in prospecting information to local producers regarding opportunities in international markets, particularly in exporting new markets. sectors such as agricultural commodities (e.g. coffee, tea, fruits), processed food, and apparel, could help boost export potential during a period of global crisis. Such activities could be conducted by the Kenya Export Promotion Agency. Providing guidance on Widely disseminating information on protocols to minimize the risk of transmission of COVID-19 among health protocols could customers could increase confidence and business activity. This could also help reduce the risk of outbreaks help reduce risk. within a business, a situation that could seriously exacerbate the operational challenges already being faced by firms. In tandem with such information campaigns, some financial support to help firms adopt the required sanitary measures could improve compliance. Stronger A common challenge across many developing countries, including Kenya, is that a very large share of businesses communication is are not aware of the public programs available to support them. In Kenya, about 80 percent of businesses needed about policy that did not receive support reported they were not aware of the options available to them. Evidence from a interventions already similar survey across countries suggests that firms that are more likely to receive assistance also have better available to support expectations regarding the future of their business. businesses. Targeted channels Kenya has more than 20 national programs in place to support entrepreneurship activities. An ongoing should be used assessment conducted by the World Bank suggests that many of those programs provide services related to reach different to access to finance. However, information about those policy instruments is not easily available. The GoK types of firms could consolidate information about all public programs to support businesses, including the expansion of with information activities specifically related to COVID-19, and facilitate access to this information for businesses. This could be regarding government converted into a sustained practice as a way to optimize public resources. programs. 4.4.5. Targeting firms: Results of the COV-BPS suggest the impact of COVID-19 on businesses in Kenya is widespread across firms of different size, sector, region, and age. This creates significant challenges for policymakers when defining a specific group of firms to target. MSMEs seem to be the most vulnerable in general. They are disproportionally more impacted in terms of reductions in sales and they face a higher likelihood that they will close, partially because they tend to have less access to credit. At the same time, the number of layoffs is significantly higher among large firms. Given the ubiquity of the shock across the whole economy, the challenge of targeting specific groups of firms is not much different than it was prior to COVID-19. The cautions that were applicable before the pandemic regarding targeting criteria for interventions to support businesses are still valid – the large heterogeneity between firms belonging to same sector and of similar size must be taken into account. https://www.wsj.com/articles/high-food-prices-drive-consumers-to-hunt-for-value-11591700401 46 November 2020 | Edition No. 22 47 Policy Options Recommendation Comments/Explanation A “funnel approach” This approach might be particularly relevant for interventions that aim to provide business training and financing to assistance can support through grants, but are looking to identify businesses with a high level of commitment and need. The help ensure that program can provide very basic assistance services for a large number of firms (e.g. some online courses, simple the firms with the benchmarking information, or a short one-hour firm visit). Firms that demonstrate interest and undertake some greatest potential for improvement actions following this first engagement can then be filtered into receiving a second, more intermediate improvement get the level of business training support or a specific grant. This approach has the political advantage of offering some most support. assistance to a large number of firms while restricting the most costly and time-consuming parts of the program to firms that demonstrate engagement and immediate improvement.47 Mobile phones can be MSMEs run by women can be disproportionally affected by the COVID-19 shock, and specific targeted used to reach women- interventions already conducted in Kenya suggest that they can lead to effective results.48 Policies could owned businesses. include: (i) providing mobile phones to women to facilitate access to financing, and (ii) using customer data on mobile phone and mobile banking transactions to identify women more likely to be vulnerable during this crisis to more effectively target relief payments. The targeting of Mobile Network Operator (MNO) data that captures financial transactions such as credit, remittance, and solutions can leverage payment data for firms, can be especially useful. Some of the simple metrics to identify these enterprises could big data analytics from be: (i) reduced volume and number of mobile money transactions, (ii) increased uptake of overdraft facilities in digital platforms. the last few months, and (iii) vulnerable informal MSMEs in hard-hit sectors by the COVID-19 pandemic such as the retail, agribusiness and manufacturing sectors. Complementary Given the extent of the COVID-19 crisis, providing liquidity may be an insufficient remedy, as liquidity does measures should be not compensate businesses for their losses. Should the crisis threaten the solvency of MSMEs, governments considered to offer would have to consider additional measures to complement the emergency actions discussed above. Some support for solvency options may include: direct compensation through grants for viable firms/sectors that have been significantly problems among impacted;50 support for publicly funded venture capital companies and funds to inject equity if markets SMEs or strategically failures are clearly identified;51 indirect support through loss-sharing mechanisms and other forms of leverage large firms.49 funding; and stimulating private equity investment.52 The implementation of any of these options should address specific market failures, be reassessed regularly, and remain temporary in nature. These schemes can be controversial if they lead to large scale nationalizations and can be expensive in terms of fiscal resources. Therefore, they would have to be designed in a transparent way with clear sunset clauses and exit strategies. 4.4.6. To help mitigate the adverse economic and social impacts of COVID-19 on households, the Kenya COVID-19 RRPS findings suggest three policy response options in the area of food security and livelihoods, human capital, and awareness and communication. While the policy suggestions on the side of firms will help to alleviate pressures on livelihoods of households by supporting employment, additional direct measures targeting households are needed. Given the negative impact of COVID-19 on livelihoods, it is crucial for households to be supported to sustain livelihoods and food security. Risks to human capital must be reduced especially for children and youth given the significant role of human capital in future opportunities and livelihoods. Finally, awareness and communication are key to ensure that citizens are aware of risks and know about support programs. 4.4.7. Food security and livelihoods: Securing access to food and supporting livelihoods through social protection programs can help reduce the use of negative coping strategies compromising assets or food consumption. Despite the urgency of making such support available in larger scale, a well-targeted approach is essential also given the fiscal resources required. 47 See more details on McKenzie, D. (2020) Small Business Training to Improve Management Practices in Developing Countries. Policy Research Working Paper, 9408. World Bank. 48 McKenzie, David and Susana Puerto (2017) “Growing Markets through Business Training for Female Entrepreneurs: A Market-Level Randomized Experiment in Kenya”, American Economic Journal: Applied Economics. 49 More details are provided by World Bank (2020). Assessing the impact and policy responses in support of private-sector firms in the context of the COVID-19 pandemic. 50 For example, the European Commission indicated that direct compensation for damages suffered due to the COVID-19 outbreak for companies active in sectors that have been particularly hit (e.g. transport, tourism and hospitality or organizers of cancelled events) would be authorized even though they are state aids, which are typically prohibited in the EU. 51 For example, France and Germany have a long tradition of using these instruments through state development banks to provide risk capital to MSMEs. 52 As with lending, guarantees have the potential to provide large-scale effects and subsidy leverage if they are well designed and implemented. The US Small Business Administration’s leverage program for Small Business Investment Companies has a long history and provides a number of lessons. 48 November 2020 | Edition No. 22 Policy Options Recommendation Comments/Explanation Access to food must Reducing food consumption is the most widely used coping strategy to mitigate the COVID-19 shock. Food be secured. security needs to be ensured by providing assistance that is well targeted to the poor and rural households in which people otherwise face inadequate nutrition. Resources saved with the suspension of school feeding programs could be used to provide food for households with children. Targeted cash transfers Expanding cash transfer programs targeted to the poorest and most affected households in both rural and to mitigate negative urban settings. Effective targeting will be essential to ensure that cash transfer programs reach the households coping strategies. most in need and have the strongest impact (Box 6) while taking into account tight fiscal resources. Targeted cash transfers Scaling up input support through the e-voucher program and leveraging existing programs to enhance to mitigate negative agriculture production. coping strategies. 4.4.8. Human capital: The closure of schools has affected learning by children especially for households without appropriate access to remote learning. COVID-19 has also created fear of infection at health facilities. Thus, specific interventions are needed to enhance access to education and health services to reduce human capital losses. Recommendation Comments/Explanation Educational radio, The first school openings began on 12 October 2020, with strict COVID-19 containment protocols and television broadcasts guidelines to be imposed. In parallel, access to learning resources, radio and television programs should be as well as digital continued and made available through a larger variety of channels. Increasing internet coverage, access to technology should be EdTech and communicating the availability of digital learning platforms accessible through smartphones can continued during the help increase the use of learning resources. phased reopening of schools. Ensuring access to Health care facilities not used for treating COVID-19 should be made available to treat non-communicable safe healthcare for diseases like cancer, cardiovascular disease and diabetes (while maintaining anti-coronavirus protocols), to non-COVID-19 related help limit a rise in long-term health problems due to inadequate preventative care and treatment during the health concerns can pandemic. Clear information regarding the health facilities that treat COVID-19 as opposed to those that do not help reduce the long- can help the population select facilities and seek timely medical attention. term impact of the pandemic on health outcomes. Providing free of Especially in urban areas with higher population density as well as more COVID-19 cases, access to quarantine charge quarantine centers can contribute to decreasing the spread of the virus. Importantly, such centers can incorporate centers to isolate awareness and sensitization programs to help reduce stigma around people infected with COVID-19. individuals who cannot be isolated at home can help lessen the risk of contagion. Improve access Mental health services should be continued by phone and - where possible - on a face-to-face basis. to mental health services to lessen the psychological impacts of COVID-19. November 2020 | Edition No. 22 49 Policy Options 4.4.9. Awareness and communication: Improving communication strategies can help enhance the adoption of preventive behaviors and build trust in the capacity of the government. Recommendation Comments/Explanation National radio and As the provision of updated information can help improve preparedness practices, ongoing radio and television television can be communication campaigns should be maintained and strengthened. Similarly, such campaigns can be used to further exploited combat myths about the disease while contributing to reduce stigmatization of those infected. as key channels to provide updated information and promote preventive behaviors. Communicating Reinforcing communication campaigns on actions taken by the government and existing support programs about governmental could be helpful to build trust and ultimately boost the effectiveness of public health measures. actions to help the population cope with the socioeconomic impacts of the pandemic can strengthen citizens’ trust in the capacity of the government. 4.4.10. In addition to these direct responses, ready-to-use sampling frames for phone surveys need to be prepared and maintained by the Kenya National Bureau of Statistics. Phone surveys are generally highly suited for swift data collection especially in the context of large shocks, as demonstrated by the current COVID-19 pandemic. To quickly implement timely and representative phone surveys to effectively inform responses, KNBS should maintain reliable and up-to-date national sampling frames, including phone numbers stratified by geographic area. Ideally these sampling frames would also include vulnerable populations such as refugees and stateless people. Box 6: Well-targeted cash transfers can be a powerful tool to mitigate shocks COVID-19 is estimated to increase poverty in Kenya by about Figure B6.1: Area-based geographic targeting 4 percentage points or 2 million ‘newly’ poor Kenyans. Kenya’s poor population was predominantly rural and less well education pre-COVID-19. However, the shock of COVID-19 created a new group of ‘newly’ poor Kenyans with different demographic characteristics. They tend to be urban with household heads who are younger and more educated. Newly-poor households also tend be smaller and have a larger share of working-aged individuals. Properly differentiating between these populations and understanding their characteristics can help improve the effectiveness of a given intervention in lessening the impacts of a specific shock. Targeted cash transfers are more efficient at offsetting the poverty increases caused by COVID-19, while also saving fiscal space. Cash transfers can provide relief to households, thereby Recipients reducing the use of detrimental coping strategies like having to (5000,12500] (2000,5000] reduce food intake or sell productive assets. Such cash transfers (1500,2000] (1000,1500] can be more effective in reducing poverty compared to relief (800,1000] (600,800] measures as implemented for VAT. With a budget of KSh 50 (400,600] (200,400] billion equal to the cost of the VAT relief implemented by the (0,200] government, a targeted cash transfers of KSh 20,000 could reach 2.5 million poor households more than offsetting the increase of Source: Authors calculation based on KIHBS 15/16 50 November 2020 | Edition No. 22 Policy Options Box 6: Well-targeted cash transfers can be a powerful tool to mitigate shocks (contd.) poverty by COVID-19 leading to an overall reduction of poverty Figure B6.2: COVID-19 and cash-transfer impacts on poverty by more than 1 percentage point compared to pre-COVID-19 headcount rate levels. In contrast, a universal transfer of KSh 4,380 requiring the 5 same budget of KSh 50 billion would only partially offset the 4 increase in poverty leaving poverty levels about 2 percentage 3 points higher than pre-COVID-19. 2 Percent Additional cash transfers should use existing programs 1 and delivery systems, focusing on expanding coverage 0 given the difference in the ‘existing’ and ‘newly’ poor. Any -1 additional cash transfer should use the existing social protection Universal Targeted Universal Targeted infrastructure, including registries, administrative structures and -2 (KSh 2,190) (KSh 20,000) (KSh 4,380) (KSh 20,000) implementation mechanisms, which will in turn help increase COVID-19 + 25bn CT COVID-19 + 50bn CT preparedness for future crises. Due to the differences in the Change in Poverty Headcount COVID-19 Impact ‘existing’ and ‘newly’ poor, cash transfers should be expanded Source: Authors calculation based on KIHBS 15/16 beyond existing beneficiaries to also cover the ‘newly’ poor. Finally, adequate budget support is required to ensure current National Safety Net Program (NSNP) beneficiaries continue to be supported with timely cash transfer payments. [1] In this simulation administrative costs are not considered, although they would be larger for a targeted transfer than a universal transfer. November 2020 | Edition No. 22 51 REFERENCES Beaman, Lori, Jeremy Magruder, and Jonathan Robinson. "Minding small change among small firms in Kenya." Journal of Development Economics 108 (2014): 69-86. GeoPoll. Brooks, Wyatt, Kevin Donovan, and Terence R. Johnson. "Mentors or teachers? Microenterprise training in Kenya." 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(2020). “Global Economic Prospects: Pandemic, Recession: The Global Economy in Crisis”, June 2020: https://openknowledge.worldbank.org/handle/10986/33748 Yap, Jonathan, Vernon Lee, Teng Yan Yau, Tze Pin, and Phern-Chern Tor. “Knowledge, Attitudes and Practices towards Pandemic Influenza among Cases, Close Contacts, and Healthcare Workers in Tropical Singapore: A Cross- Sectional Survey.” BMC Public Health 2010; 10: 442. ANNEX TABLES Annex Tables Table A1: Selected economic indicators, 2016- 2023 2016 2017 2018 2019 2020 2021 2022 Act. Act. Act. Act. Est. Proj. Proj. Output and prices (Annual percentage change, unless otherwise indicated) Real GDP 5.9 4.4 6.3 5.5 -1.0 6.9 5.7 Agriculture 4.7 1.6 6.0 3.6 5.6 4.2 3.9 Industry 5.9 3.9 5.5 4.6 2.1 3.6 4.0 Services 6.4 5.9 6.7 6.7 -4.8 9.3 7.1 Private consumption 4.8 7.4 6.5 5.0 1.0 7.6 6.3 Government consumption 5.6 3.9 5.6 4.9 5.7 4.9 3.6 Gross fixed capital investment -9.2 8.3 1.3 2.4 -6.2 8.2 7.7 Exports, goods and services -2.2 -6.2 3.9 -0.2 0.1 7.3 6.4 Imports, good and services -3.4 8.6 2.5 -2.0 -0.5 8.8 8.0 GDP deflator 5.6 10.9 2.4 4.0 9.2 6.1 6.4 CPI (period average) 6.3 8.0 4.7 5.2 5.1 5.2 5.5 Money and credit (Annual percentage change, unless otherwise indicated) Broad money (M3) 3.0 7.9 9.8 5.6 .. .. .. Credit to non-government sector 4.4 3.1 4.8 7.1 .. .. .. 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 19.2 18.2 18.5 17.3 17.0 16.6 16.7 Tax revenues 17.0 16.0 16.1 15.4 14.2 14.5 14.7 Non-tax revenues 2.9 3.1 3.3 3.5 3.4 1.7 1.7 Grants 0.4 0.3 0.2 0.2 0.5 0.4 0.3 Expenditure 27.5 25.2 26.2 25.2 26.0 23.7 22.5 Current 15.2 15.8 16.5 16.1 16.4 15.5 14.9 Capital 8.4 5.5 5.8 5.8 6.0 5.1 4.9 Primary balance -5.5 -3.6 -3.6 -3.9 -4.9 -2.7 -1.5 Overall balance including grants -9.1 -7.4 -7.6 -8.2 -9.0 -7.1 -5.8 Financing 9.1 7.4 7.8 7.8 9.0 7.1 5.8 Net domestic borrowing 4.1 3.2 3.3 4.4 5.4 3.8 3.8 Foreign financing 5.0 4.2 4.5 3.3 3.6 3.3 2.1 Public debt stock (fiscal year i.e 2015 = 2016/17) (Percent of GDP, unless otherwise indicated) Public gross nominal debt 57.4 59.2 62.4 65.6 63.2 68.6 67.6 External debt 29.9 30.1 32.5 34.5 32.5 34.6 33.2 Domestic debt 27.5 29.1 29.9 31.2 30.7 34.0 34.4 External sector (Percent of GDP, unless otherwise indicated) Exports (goods and services) 14.3 13.2 13.2 12.0 11.3 11.4 11.5 Imports (goods and services) -23.4 -24.2 -23.0 -21.4 -19.7 -20.1 -20.7 Current account balance (including grants) -5.8 -7.2 -5.8 -5.8 -4.5 -4.8 -5.2 Gross international reserves (in billions of US$) 9.60 8.75 9.20 9.35 .. .. .. In months of next year imports 5.0 5.4 5.7 5.8 .. .. .. Exchange rate (Kenyan shilling/US$) 101.5 103.4 101.3 102.0 .. .. .. Memo: GDP at current market prices (KSh billion) 7,023 8,166 8,892 9,741 10,536 11,956 13,439 Source: World Bank, based on data from Kenya National Bureau of Statistics, National Treasury and Central Bank of Kenya 56 November 2020 | Edition No. 22 Annex Tables Table A2: GDP growth rates for Kenya and EAC (2015-2020) 2015 2016 2017 2018 2019 2020e Kenya 5.7 5.9 4.8 6.3 5.4 -1.0 Uganda 5.2 4.8 3.8 6.2 6.8 3.1 Tanzania 6.2 6.9 6.8 5.4 5.8 2.5 Rwanda 8.8 5.9 4.0 8.6 9.4 2.0 Burundi -3.9 -0.6 0.5 1.6 1.8 0.3 EAC 5.8 5.9 5.1 6.1 6.0 1.2 Source: World Bank Note: “e” denotes an estimate EAC Average excludes South Sudan Table A3: Kenya annual GDP (2012-2019) GDP, GDP, 2009 GDP/capita, Years GDP growth current prices constant prices current prices KSh Millions KSh Millions US$ Percent 2008 2,483,058 2,772,019 917 0.2 2009 2,863,688 2,863,688 920 3.3 2010 3,169,301 3,104,303 967 8.4 2011 3,725,918 3,294,026 972 6.1 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 Development Indicators November 2020 | Edition No. 22 57 Annex Tables Table A4: Broad sector growth (y-o-y, Percent) Year Quarterly Agriculture Industry Services GDP Q1 5.3 9.4 5.4 6.1 Q2 6.8 6.9 8.0 7.5 2013 Q3 5.8 6.2 6.7 6.4 Q4 3.6 -0.6 4.8 3.5 Q1 4.2 5.8 5.5 5.2 Q2 4.4 9.9 5.5 6.0 2014 Q3 7.1 3.5 4.2 4.6 Q4 1.8 5.3 6.9 5.6 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 6.6 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 6.2 5.3 2019 Q3 2.4 4.7 6.3 5.2 Q4 4.0 3.8 6.4 5.5 Q1 4.9 4.4 5.1 4.9 2020 Q2 6.4 -0.5 -12.2 -5.7 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 58 November 2020 | Edition No. 22 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 1.8 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 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 2019 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 0.8 0.4 0.5 0.4 1.3 3.5 Q1 1.3 0.1 0.3 0.2 0.3 0.8 -0.1 0.4 0.3 0.4 0.4 1.1 2.5 2020 Q2 1.5 0.1 -0.4 0.0 0.2 -0.1 -0.9 -0.8 0.2 0.2 0.2 -4.4 -5.5 Source: World Bank, based on data from Kenya National Bureau of Statistics Note: Other = Wholesale and retail trade + Public admistration + Proffessional, admistration and support services + Education + Health +Other services + FISIM November 2020 | Edition No. 22 59 60 Table A6: Quarterly growth rates (percent) Agriculture Industry Services GDP Four Year Quarter Four Quarter Four Quarter Four Quarter Quarter-on- Quarter-on- Year-on- Quarter Quarter-on- Quarter-on- Year-on-Year Moving Year-on-Year Moving Year-on-Year Moving Quarter Quarter Year Moving Quarter Quarter 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 November 2020 | Edition No. 22 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 6.6 6.6 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 6.3 Q4 -9.3 3.9 6.0 0.4 6.4 5.5 5.5 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 7.9 5.5 5.5 Q2 -13.5 2.9 3.9 4.1 5.4 5.1 2.5 6.2 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 Q1 72.1 4.9 4.9 2.6 4.4 4.4 -7.5 5.1 5.1 7.3 4.9 4.9 2020 Q2 -12.3 6.4 5.6 -0.8 -0.5 1.9 -14.3 -12.2 -3.7 -11.3 -5.7 -0.4 Source: World Bank and Kenya National Bureau of Statistics Annex Tables Annex Tables Table A7: National Fiscal position Actual (percent of GDP) 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20* 2020/21** Revenue and Grants 19.7 19.7 19.5 19.1 19.2 18.2 18.5 17.3 17.0 Total Revenue 19.2 19.2 19.0 18.7 18.8 17.9 18.3 17.1 16.5 Tax revenue 17.2 18.1 17.7 17.2 17.0 16.0 16.1 15.4 14.2 Income tax 8.3 8.9 8.7 8.4 8.1 7.5 7.4 6.9 6.5 VAT 4.1 4.6 4.5 4.3 4.4 4.2 4.5 3.8 3.9 Import Duty 1.3 1.3 1.3 1.2 1.2 1.1 1.1 1.0 0.9 Excise Duty 1.9 2.0 2.0 2.1 2.2 2.0 2.1 1.9 1.9 Other Revenues 1.7 1.3 1.3 1.2 1.1 1.2 1.1 1.9 1.1 Railway Levy Appropriation in Aid Grants Expenditure and Net Lending 25.1 25.6 28.1 26.9 27.5 25.2 26.2 25.2 26.0 Recurrent 18.1 14.8 15.4 15.4 15.2 15.8 16.5 16.1 16.4 Wages and salaries 6.1 5.5 5.1 4.6 4.4 4.6 4.5 4.4 4.3 Interest Payments 2.7 2.7 2.9 3.2 3.5 3.8 4.0 4.3 4.1 Other recurrent 9.3 6.6 7.3 7.7 7.3 7.5 8.0 7.4 8.0 Development and net lending 6.8 6.3 8.8 7.3 8.4 5.5 5.8 5.8 6.0 County allocation 0.2 3.8 3.9 4.1 4.0 3.8 3.9 3.2 3.5 Contingencies 0.0 0.0 0.1 0.1 0.1 0.0 0.0 0.0 0.0 Parliamentary Service 0.4 0.4 0.3 0.0 0.0 0.0 0.0 0.0 Judicial Service 0.3 0.2 0.2 0.0 0.0 0.0 0.0 0.0 Fiscal balance Deficit including grants (cash basis) -5.7 -6.1 -8.1 -7.1 -9.1 -7.4 -7.6 -8.2 -9.0 Financing 5.7 6.1 8.1 7.1 9.1 7.4 7.8 7.8 9.0 Foreign Financing 3.8 4.0 3.7 4.0 5.0 4.2 4.5 3.3 3.6 Domestic Financing 1.9 2.1 4.4 3.1 4.1 3.2 3.3 4.4 5.4 Total Public Debt (gross) 42.1 47.8 48.8 53.8 57.4 59.2 62.4 65.6 63.2 External Debt 18.7 22.4 24.4 26.8 29.9 30.1 32.5 34.5 32.5 Domestic Debt 23.3 25.3 24.4 27.1 27.5 29.1 29.9 31.2 30.7 Memo: GDP (Fiscal year current market prices, KSh bn) 4,503 5,074 5,832 6,710 7,675 8,518 9,303 10,197 11,267 Source: September 2020 Budget Review and Outlook Paper (BROP) and Quarterly Budgetary Economic Review (first quarter, Financial Year 2020/2021), National Treasury Note: *indicate Preliminary results November 2020 | Edition No. 22 61 62 Table A8: Kenya’s Public and Publicly Guaranteed Debt, 2017 to Dec 2019 KSh Millions Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Sep-18 Dec-18 Mar-19 Jun-19 Sep-19 Dec-19 Mar-20 Jun-20 Sept-20* TOTAL PUBLIC DEBT (Net) 3,972,526 4,048,978 4,217,515 4,304,497 4,488,204 4,638,932 4,834,754 5,016,206 5,301,192 5,441,523 5,518,474 5,819,499 6,190,026 6,500,544 Lending (5,701) (5,701) (5,701) (5,701) (5,701) (5,701) (5,701) (5,701) (5,701) (5,701) (5,701) (5,701) (5,701) (5,701) Government Deposits (428,774) (432,113) (350,924) (573,884) (545,075) (501,404) (432,049) (398,223) (501,728) -516,182 -524,752 (457,623) (497,609) (614,353) Total Public Debt (Gross) 4,407,001 4,486,793 4,574,140 4,884,082.0 5,038,981.0 5,146,037 5,272,504 5,420,130 5,808,621 5,963,406 6,048,927 6,282,823 6,693,336 7,120,578 External Debt November 2020 | Edition No. 22 2,294,736 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 3,212,634 3,515,810 3,663,491 Bilateral 724,823 742,064 782,588 800,912 816,119 812,545 894,046 916,572 996,059 1,024,092 1,037,538 1,060,609 1,074,257 1,102,890 Multilateral 841,899 842,814 841,847 836,766 820,966 877,730 874,680 846,587 914,394 1,001,817 1,023,821 1,075,901 1,321,629 1,421,840 Commercial Banks 712,100 708,231 712,274 858,062 906,389 898,349 938,151 941,763 1,095,753 1,068,664 1,028,691 1,058,796 1,102,294 1,120,803 Suppliers Credit 15,914 17,089 17,086 16,691 16,725 16,709 16,857 16,676 16,932 17,194 16,773 17,328 17,630 17,958 Domestic Debt 2,112,265 2,176,595 2,220,345 2,371,651 2,478,782 2,540,704 2,548,770 2,698,532 2,785,483 2,851,639 2,942,104 3,070,189 3,177,526 3,457,107 Central Bank 55,061 79,201 96,797 93,583 110,782 90,210 118,196 89,709 109,607 120,494 115,972 106,433 98,878 107,356 Commercial Banks 1,141,889 1,148,296 1,124,950 1,226,866 1,266,404 1,315,333 1,289,558 1,397,771 1,414,275 1,417,997 1,491,438 1,570,594 1,653,194 1,808,043 Non Banks & Nonresidents 915,316 949,098 998,598 1,051,202 1,101,596 1,135,161 1,141,015 1,211,052 1,261,601 1,313,148 1,334,694 1,393,162 1,425,454 1,541,707 (%) of Total public debt (gross) External Debt 52.1 51.5 51.5 51.4 50.8 50.6 51.7 50.2 52.0 52.2 51.4 51.1 52.5 51.4 Domestic Debt 47.9 48.5 48.5 48.6 49.2 49.4 48.3 49.8 48.0 47.8 48.6 48.9 47.5 48.6 % of External debt Bilateral 31.6 32.1 33.2 31.9 31.9 31.2 32.8 33.7 32.9 32.9 33.4 33.0 30.6 30.1 Multilateral 36.7 36.5 35.8 33.3 32.1 33.7 32.1 31.1 30.2 32.2 33.0 33.5 37.6 38.8 Commercial Banks 31.0 30.7 30.3 34.2 35.4 34.5 34.4 34.6 36.2 34.3 33.1 33.0 31.4 30.6 Suppliers Credit 0.7 0.7 0.7 0.7 0.7 0.6 0.6 0.6 0.6 0.6 0.5 0.5 0.5 0.5 % of Domestic debt Central Bank 2.6 3.6 4.4 3.9 4.5 3.6 4.6 3.3 3.9 4.2 3.9 3.5 3.1 3.1 Commercial Banks 54.1 52.8 50.7 51.7 51.1 51.8 50.6 51.8 50.8 49.7 50.7 51.2 52.0 52.3 Non Banks & Nonresidents 43.3 43.6 45.0 44.3 44.4 44.7 44.8 44.9 45.3 46.0 45.4 45.4 44.9 44.6 Source: National Treasury (Quarterly Economic Budgetary Review,September 2020) Note: *Provisional Annex Tables Table A9: 12-months cumulative balance of payments BPM6 Concept (US$ million) 2013 2014 2015 2016 2017 2018 2019 Sep-20 Annex Tables A. Current Account, n.i.e. (5,427) (6,442) (4,303) (3,387) (5,685) (5,048) (5,541) (4921) Merchandise A/C (10,220) (10,775) (8,388) (7,666) (10,186) (10,201) (10,679) (8,947) Goods: exports f.o.b. 5,870 6,155 5,970 5,745 5,801 6,088 5,872 6,014 Goods: imports f.o.b. 16,089 16,929 14,358 13,411 15,987 16,289 16,551 14,962 Oil 3,838 4,026 2,500 2,087 2,728 3,386 3,310 2,444 Services 2,318 1,676 1,317 1,432 1,556 1,596 1,767 509 Services: credit 5,130 5,023 4,636 4,164 4,648 5,477 5,621 4,190 Services: debit 2,813 3,347 3,319 2,732 3,092 3,881 3,854 3,681 Income 2,475 2,657 2,769 2,847 2,945 3,557 3,371 3,517 B. Capital Account, n.i.e. 158 275 262 206 184 263 208 158 C. Financial Account, n.i.e. (5,204) (7,398) (3,914) (4,424) (5,563) (6,547) (6,233) (3,713) Direct investment: net (920) (746) (382) (523) (1,010) (1,463) (1,132) (482) Portfolio investment: net (273) (3,716) 156 350 789 (627) (1,312) 1,190 Financial derivatives: net - - - 5 4 11 (5) Other investment: net (4,011) (2,936) (3,688) (4,255) (5,342) (4,457) (3,789) (4,420) D. Net Errors and Omissions 434 221 (128) (1,112) (166) (720) 154 (156) E. Overall Balance (369) (1,453) 255 (131) 108 (1,030) (1,059) 1,217 F. Reserves and Related Items 369 1,453 (255) 131 (108) 1,030 1,059 (1,217) Reserve assets 859 1,333 (361) 40 (228) 885 905 (606) Credit and loans from the IMF 177 (119) (107) (91) (120) (145) (154) 612 Exceptional financing 312 - - - - - - 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 5 6 Memo: Annual GDP at Current prices (USD Million) 54,978 59,735 41,372 42,370 43,587 47,306 49,536 November 2020 | Edition No. 22 Source: Central Bank of Kenya 63 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 14.9 4.7 2.2 February 7.2 9.6 5.5 2.3 March 5.8 11.9 4.5 1.9 April 6.0 11.6 4.9 2.0 May 5.3 10.6 5.0 1.8 2020 June 4.6 8.2 5.4 1.6 July 4.4 6.6 6.1 2.0 August 4.4 5.4 7.6 2.1 September 4.2 5.2 7.6 1.9 October 4.8 5.8 8.2 2.5 Source: World Bank, based on data from Kenya National Bureau of Statistics 64 November 2020 | Edition No. 22 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 February 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 November 2020 | Edition No. 22 March 8.9 1.4 15.3 9.4 9.5 7.1 6.6 2.2 3.9 3.4 24.1 3.3 36.8 2020 April 9.0 2.8 20.1 10.3 7.7 9.1 3.1 4.8 11.0 2.2 19.6 1.2 14.3 65 May 8.2 2.6 18.2 8.0 5.7 5.7 8.4 4.4 5.8 3.2 16.7 2.7 16.9 June 7.6 1.3 12.3 8.4 4.6 14.9 3.2 4.9 10.0 3.2 15.2 5.8 -3.7 Source: Central Bank of Kenya 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 February 235543 58.7 148.5 350.5 March 240261 58.7 150.7 364.5 April 242275 59.4 125.0 308.0 2020 May 243118 60.2 135.9 357.4 June 237637 61.7 143.1 392.2 July 234747 62.1 157.8 451.0 August 252703 62.8 163.2 473.5 September 263200 64.0 163.3 483.2 Source: Central Bank of Kenya 66 November 2020 | Edition No. 22 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 101.1 132.1 112.3 February 100.8 130.8 109.9 March 103.7 128.5 114.7 April 106.4 131.9 115.6 May 106.7 131.3 116.1 2020 June 106.4 133.4 119.8 July 107.3 135.3 122.5 August 108.1 141.9 127.8 September 108.4 140.9 128.0 October 108.6 140.9 127.9 Source: Central Bank of Kenya November 2020 | Edition No. 22 67 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 February 2,338 March 1,966 April 1,958 May 1,964 2020 June 1,942 July 1,804 August 1,795 September 1,852 October 1,784 Source: Central Bank of Kenya 68 November 2020 | Edition No. 22 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 10.3 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 February 8.3 7.3 8.2 9.9 March 7.3 7.3 8.1 9.2 April 7.0 7.2 8.1 9.1 May 7.0 7.3 8.2 9.2 2020 June 7.0 7.1 7.9 8.9 July 7.0 6.2 6.7 7.6 August 7.0 6.2 6.6 7.5 September 7.0 6.3 6.7 7.6 October 7.0 6.5 6.9 7.8 Source: Central Bank of Kenya November 2020 | Edition No. 22 69 Annex Tables Table A16: Interest rates Short-term Long-term Year Month Overall Interbank 91-Treasury Central Average Savings weighted Interest Bill Bank Rate deposit rate lending rate Rate Spread 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 February 4.3 7.3 8.3 7.1 4.2 12.2 5.1 March 4.4 7.3 7.3 7.1 4.2 12.1 5.0 April 5.1 7.2 7.0 7.0 4.2 11.9 4.9 May 3.9 7.3 7.0 7.0 4.2 11.9 5.0 2020 June 3.3 7.1 7.0 6.9 4.2 11.9 5.0 July 2.1 6.2 7.0 6.8 4.1 11.9 5.2 August 2.6 6.2 7.0 6.6 3.8 12.0 5.4 September 2.9 6.3 7.0 October 2.7 6.5 7.0 Source: Central Bank of Kenya 70 November 2020 | Edition No. 22 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 February 7.3 8.1 7.9 2.3 March 4.9 6.4 7.2 -2.4 April 6.2 7.5 8.6 -4.0 2020 May 7.1 8.6 9.9 -11.0 June 5.8 8.7 8.4 -2.9 July 11.4 11.9 11.3 9.1 August 12.7 11.4 11.0 13.2 September 14.1 11.0 10.7 Source: Central Bank of Kenya and World Bank November 2020 | Edition No. 22 71 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 4,084 201 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 771 435 1,906 634 January 3,049 439 2,639 985 February 4,410 427 3,169 1,687 March 4,845 422 4,604 2,410 April 2,244 295 4,396 2,590 2020 May 1,125 276 4,313 2,279 June - - 5,414 2,956 July 1,310 358 3,546 1,799 August 1,209 525 3,182 1,484 Source: Kenya National Bureau of Statistics 72 November 2020 | Edition No. 22 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 46,305 242 45,374 11,065 November 45,087 235 43,650 10,735 December 50,660 225 39,312 9,484 January 53,636 232 48,770 11,452 February 49,201 214 47,570 11,022 March 55,733 207 51,441 11,665 April 49,656 225 57,722 13,193 2020 May 47,004 210 48,594 11,289 June 46,378 198 46,399 10,293 July 36,554 194 46,851 10,014 August 47,035 10,269 Source: Kenya National Bureau of Statistics November 2020 | Edition No. 22 73 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 January 358 477 55 90 986 February 342 431 54 100 934 March 359 460 56 86 969 April 298 412 36 88 841 2020 May 319 392 56 106 881 June 334 421 62 88 913 July 358 433 61 110 969 August 358 424 71 119 977 Source: Kenya National Bureau of Statistics 74 November 2020 | Edition No. 22 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 53,585 53,060 20,124 485,178 February 55,218 46,139 22,749 470,146 March 61,413 45,463 26,313 507,037 April 58,230 35,312 23,214 501,921 May 53,086 36,307 22,501 486,301 June 46,074 28,545 24,667 477,432 2019 July 47,149 25,097 23,260 527,115 August 49,248 32,835 21,918 512,470 September 53,234 33,356 22,641 519,370 October 47,586 35,259 22,619 504,615 November 50,715 30,898 21,871 479,085 December 55,398 38,325 22,547 496,517 January 52,654 53,155 23,397 530,404 February 49,406 51,083 21,989 548,818 March 49,494 52,897 18,527 559,424 April 47,354 45,458 12,469 509,197 2020 May 46,364 46,350 18,076 511,961 June 48,126 49,681 18,307 527,619 July 53,131 600,571 August 628,496 Source: Kenya National Bureau of Statistics November 2020 | Edition No. 22 75 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 113,362 15,727 129,089 February 107,058 12,864 119,922 March 106,001 9,732 115,733 April 104,418 5,096 109,514 May 98,788 3,689 102,477 June 126,822 2,454 129,276 2019 July 150,286 8,663 158,949 August 150,723 11,000 161,723 September 124,001 9,208 133,209 October 115,828 10,940 126,768 November 111,548 12,339 123,887 December 121,912 12,391 134,303 January 114,873 12,214 127,087 February 108,578 11,092 119,670 March 43,346 3,950 47,296 April 12 - 12 2020 May 1,229 - 1,229 June 534 2 536 July 617 1 618 August 13,371 548 13,919 Source: Kenya National Bureau of Statistics Note: JKIA (Jomo Kenyatta International Airport, MIA (Moi International Airport) 76 November 2020 | Edition No. 22 Technical Annex for Special Focus Representativeness of the Kenya COVID-19 RRPS household sample The COVID-19 RRPS household survey was not able to include households without valid phone numbers. As phone surveys can only reach respondents who use a phone with an active subscription in an area with network coverage, statistics are only representative for this part of the population. Nationally, 80 percent of Kenyan households report owning a mobile phone (Figure X.1). Although cellphone penetration and coverage are high, it is not universal. The sample, therefore, is not representative for households without a valid phone number, potentially excluding vulnerable households who cannot afford a phone subscription and/or are living in areas without network coverage. The North-East of Kenya have lowest mobile phone penetration and are amongst the most vulnerable counties in Kenya. Conversely, most of the central and southern regions display a much higher mobile phone penetration. The Kenya COVID-19 Rapid Response Phone Survey uses re-weighting techniques to enhance representativeness of the overall sample. Figure X.1: Mobile phone coverage in Kenya Proportion of hh with mobile phone 0% - 20% 21% - 40% 41% - 60% Mombasa 61% - 80% 81% - 100% 0 100 200km November 2020 | Edition No. 22 77 Annex Households that were included in the sample have better social-economic conditions than those that were excluded. Using the 2015/16 KIHBS CAPI and the 2019 KCHS, it is possible to identify differences between households that provided a phone number and were reached by the RRPS as opposed to those that did not (Table B1). Households providing a phone number have better living conditions. They are also more likely to have better housing materials, have more rooms available and are more likely to own assets like a refrigerator, radio or mattress. Additionally, the households that were reached by the Kenya COVID-19 RRPS were found to have better socioeconomic conditions when compared to the ones who could not be reached (regardless of whether they provided a phone number). Comparing the socio-economic characteristics of the interviewed households to the ones of the nationally representative 2019 Kenya Continuous Household Survey (KHCS) shows similar, statistically significant differences. Table B1: Indicators by registration of phones and participation in the RRPS (VII) (II) (Iii) (V) (VI) (IV) P-Value (I) Provided Provided Not P-Value Variable reached in comparing All phone no phone reached in comparing RRPS (IV) and number number RRPS (II) and (III) (V) Floor material rudimentary or absent 44% 38% 60% 37% 46% <0.001 <0.001 Floor material improved (cement, asphalt) 48% 54% 33% 54% 46% <0.001 <0.001 Wall material rudimentary or absent 3% 1% 7% 1% 3% <0.001 <0.001 Wall material refined (bricks, stone, cement) 60% 66% 46% 67% 58% <0.001 <0.001 Number of habitable rooms 2.8 2.8 2.5 2.9 2.7 <0.001 0.01 Main source of lighting is electric power 56% 61% 43% 63% 54% <0.001 <0.001 Owns: refrigerator 7% 8% 5% 9% 6% <0.001 0.03 Owns: mattress 91% 95% 79% 95% 89% <0.001 <0.001 Owns: radio 64% 70% 47% 71% 61% <0.001 <0.001 Household size 4.1 4.2 4.0 4.2 4.1 <0.001 0.14 Table B2: Socioeconomic indicators by phone registry in the 2019 KCHS (III) (I) (II) P-Value of Indicator Provided phone Provided no comparison (I) number phone number VS (II) <0. 001 Floor material rudimentary or absent 44% 71% <0. 001 Floor material improved (cement, asphalt) 46% 27% <0. 001 Floor material refined (tiles, parquet) 10% 2% <0. 001 Wall material rudimentary or absent 2% 18% <0. 001 Wall material improved (mud, stones, iron) 56% 59% <0. 001 Wall material refined (bricks, stone, cement) 42% 24% <0. 001 Has electricity 47% 21% <0. 001 Owns: charcoal stove 41% 18% <0. 001 Owns: refrigerator 8% 1% <0. 001 Owns: mattress 96% 78% <0. 001 Owns: radio 45% 19% <0. 001 Household size 5.2 5.6 <0. 001 Household size 46 48 <0. 001 Women headed households 27% 36% <0. 001 78 November 2020 | Edition No. 22 Navigating the Pandemic The COVID-19 pandemic continues to unfold globally and in Kenya, threatening both lives and livelihoods. The pandemic is in icting tragic loss of life and direct human su ering from illness, in addition to eroding progress in poverty reduction (with an additional 2 million new poor) through serious impacts on incomes and jobs. Against this challenging backdrop, the twenty-second edition of the World Bank’s Kenya Economic Update (KEU 22) provides a detailed update of recent economic developments and the outlook and discusses policy options as Kenya continues to navigate through the pandemic. There are three key policy messages. First, authorities should continue to allocate su cient resources to the health sector to combat the pandemic, continue with mass testing, support self-quarantine, social distancing, and protect the most vulnerable groups. There is a need also to ensure continued access to safe healthcare for non-COVID-19 related health concerns, by assigning adequate resources to these areas (including non-communicable diseases). Given scal constraints, this will require redirecting expenditures to the highest priority areas, whilst maintaining a focus on raising the e ciency of spending and ensuring the transparent use of funds. As the crisis abates, Kenya will need to enhance its existing institutional setup for monitoring and responding to future communicable disease outbreaks, and further the still-critical “Big 4” agenda for medium-term inclusive growth, including realizing the government’s vision of sustainably providing universal healthcare. Second, supporting rms’ liquidity and digital capabilities remains important to safeguard healthy rms from permanent closure. Furthermore, following the job- and income-losses precipitated by the crisis, support is needed for the “new poor” who have lost livelihoods. This could be achieved through a horizontal scale-up of social protection programs, appropriately targeted, timely, and temporary while the crisis persists. It is critical to ensure continued support to vulnerable households, while safeguarding human capital through expanded access to digital technology, combined with better access to information to mitigate usage of negative coping strategies (i.e. asset liquidation) and combat food insecurity while o setting the increase in poverty. Third, and critically, authorities should pursue an appropriate and balanced scal consolidation over the medium term to reduce mounting debt vulnerabilities and safeguard macroeconomic stability. In the near term, tax and spending measures should continue to support the healthcare system and protect the most vulnerable households. Creating scal space to fund these critical interventions could be supported through potential quick wins in areas such as: (i) streamlining of the large ongoing public investment portfolio to create space for new and impactful projects that could help create jobs; (ii) cutting wasteful expenditures and increasing the e ciency of spending (including by leveraging digitalization to cut operational costs); and (iii) taking advantage of debt service relief to free up liquidity that would otherwise be absorbed by debt service. 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 and Investment Global Practice Poverty and Equity Global Practice