Investment Bank Genghis Capital projects Kenya’s economy will grow at 5 per cent if Covid-19 vaccinations are effective and  subject to availability of good rains in 2021.

The projection is below the World Bank’s 6.9 per cent outlook and global credit rating agency Moody’s projection of 5.6 per cent.

“We estimate a baseline real GDP growth rate of 5 per cent in 2021. The sluggish growth, below the 5.6 per cent pre-Covid-19 trend, will be weighed down by pandemic shocks on the economy,” the investment bank said during the launch of its 2021 playbook.

Fiscal consolidation

However, the government projects a 6.4 per cent recovery in 2021 and 6.1 per cent in 2022 according to Treasury Permanent Secretary Julius Muia, having revised the 2020 growth to 0.6 per  cent from 2.6 per cent.

Genghis said the positive output gap hinges on successful Covid-19 vaccination on the population that will eliminate the need for containment measures.

Job recoveries are expected to be sluggish with sectors that have borne the brunt of the pandemic and current containment measures posting slower recovery.

Director at the Financial Sector Deepening Jared Osoro, however, said that he expects the economy to grow at less than 5 per cent.

“Before the pandemic, the economy was on a mode of fiscal consolidation, and so I expect a slow return to normalcy,” said Osoro.

Businesses will also be facing a highly politicised environment, Covid-19 effects and a tough economy presenting a trilema case for decision makers. 

The chief executive of Genghis Capital Jeff Gangla noted that due to the high public debt the fiscal management of the economy will remain challenging.

Debt moratoriums

“We could use the savings from the debt suspension to inject more cash into the economy given that the Sh56 billion stimulus package was just 0.5 percent of GDP,” he said.

Domestic borrowing is expected to slow down from Sh600 billion in 2021 as the yield curve or the cost of borrowing rises with rising inflation even as investors favour shortdated bonds.

The government continues to engage lenders to secure more debt moratoriums to free up cashflow as the country finalises the post Covid-19 recovery strategy. 

“We continue to engage creditor nations in addition to discussions with IMF for a loan facility are ongoing,” said Muia.

Director of Research at Kenya Bankers Association Tiriongo expects the Sh1.4 trillion bad loans to unwind as the economy recovers saying that most of the bad loans were lent to MSMES.