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Government’s policies boost economic growth amid pandemic

Tuesday June 23 2020
By MYLES LEO

The rapid spread of the Covid-19 virus globally forced many countries to close their borders, isolate citizens and shut down sectors of their economies.

The virus has sent an unprecedented shockwave across global financial markets. Its effects can only be mitigated by the most skilful of leaders.

In Kenya, the government has put in place policies that seek to cushion the citizens against the devastating effects of the pandemic. Economists say that Kenya’s Gross Domestic Product (GDP) growth is expected to be restored as soon as world markets reopen.

The government faced a challenging task in addressing the effects of the pandemic due to the unique economic profile of the country. Kenya’s major exports like tea, flowers and coffee have been affected.

TOURISM

At one third of our GDP, agriculture makes up the lion’s share of this. Following it is the construction sector which accounts for 12.4 per cent of our GDP, as well as tourism, hospitality and manufacturing. 

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Foreign and domestic tourism have been hard hit by travel restrictions. In an uncertain international economic climate, foreign direct investment in construction projects were also affected.    

Agricultural production has also suffered greatly as our country’s key trading partners in North America and Europe are currently limiting imports in order to put a stop to the spreading of the virus.  The decline in global imports significantly reduced the demand for manufactured goods. After all, who can manufacture when international markets are closed?

This economic profile sets us apart from our East African neighbours who have had drops in their GDP growth rates.

Unlike Kenya, these countries were able to use a product or sector of their economy to circumvent the restrictions and barriers to international trade presented by the pandemic.

EXPORTS

While Ethiopia has relied on its exports of seeds, legumes and meat, gold proved to be a much more important economic cushion for Tanzania and Uganda.

The global demand for gold as a safe-haven investment vehicle has been a key point of leverage for our two neighbours.

The fact that Kenya’s lack of such products did not impinge on our ability to preserve economic growth highlights the effectiveness of the government’s economic policies.

Although we have registered a slight decline in GDP growth, the economy is still growing at a steady one per cent according to an International Monetary Fund (IMF) report in May.

Domestic policies enacted by the government alleviated the worst immediate economic effects of the past three months. The policies included a reduction of Value Added Tax (VAT) from 16 per cent to 14 per cent, a disbursement of VAT refunds in the value of Sh10 billion, as well as the reduction of corporate tax rates from 30 per cent to 25 per cent.

STIMULUS PACKAGES

These examples demonstrate the government’s resolve to focus on measures to cushion firms from the effects of the pandemic.

On the international level, the government’s negotiations with the World Bank and the IMF earned the country two major stimulus packages worth billions of shillings. These emergency funds will enable the government to keep the economy afloat.  

The government’s long-term economic policies received accolades from the review team of the IMF in early March, just before the coronavirus hit. Their report revealed that Kenya’s banking sector had become significantly stable.

Liquidity risk had eased while the ratio of non-performing loans had declined. All this projected favourable growth rates for Kenya in line with the president’s Big Four Agenda.

As European borders, and with them markets slowly open up, it is only a matter of time before we register economic growth. The government’s policies are essential towards the country’s survival during the pandemic which has led to one of the worst global economic crises. 

Mr Leo is a public policy analyst. [email protected]

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