Podcast: Covid in Kenya…an economic balancing act

As in many countries across the world, stories of hoard-buying, home working and the emergence of a ‘new normal’ characterised the arrival of the pandemic in Kenya.

The Government responded quickly with an almost immediate lockdown, triggering a wave of urban-rural migration as the urban services sector felt the impact of the strict containment measures. Despite pivoting towards the domestic market, sectors such as tourism and other services were heavily affected – micro, small and medium enterprises in the informal sector in particular, bore the brunt of reduced trade in cities like Nairobi.

Conversely, other important sectors – namely agriculture – were less affected, and their resilience helped to support the economy as a whole at a time when export markets suffered. 80% of agricultural firms remained open and operating compared to around 40% of those firms operating within the tourism sector.  

The Elephant in the Room

Despite enjoying years of relatively strong growth before the pandemic, a shrinking fiscal space caused by a high debt burden left Kenya with limited options for a stimulus package. With little fiscal buffer, a large bailout of the magnitude seen in countries like the UK simply wasn’t possible. Instead, like may other sub-Saharan African countries, the Government has had to rely on multilateral borrowing from the World Bank and IMF to help weather the economic storm caused by Covid.  

This has left the country walking a difficult balance between providing support to households through tax cuts and cash transfers while still trying to raise revenue for public expenditure – indeed, this year saw the reversal of some tax cuts and the introduction of completely new taxes.

A Lingering Impact

What this means in reality is that while estimates for growth and recovery don’t appear too ominous – with forecasts suggesting setbacks equivalent to just a year or two of lost growth – the impact on poverty at the household level is likely to be much more severe and long lasting and is further compounded by pervasive inequality between genders and regions.

Kenya’s recovery from Covid will be very much dependent on the ability of policymakers to recognise this inequality and address it to help reverse the effects of poverty which could otherwise worsen livelihoods for years to come.