NCBA projects GDP to drop to 2.3pc due to Coronavirus

Written By: Claire Wanja
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• NCBA projects over 20,000 formal jobs may be lost this year, with many more layoffs expected in the informal sector.

NCBA Bank Kenya Plc (NCBA Bank) is projecting the country’s Gross Domestic Product (GDP)to decelerate sharply to 2.3 per cent in 2020, should the COVID-19 pandemic persist through the second quarter of 2020.

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This it says is a sharp downgrade from its 5.7% projection in January 2020 prior to the outbreak of COVID-19 in the country.

The bank, in its quarterly economic outlook, titled “The ‘Navigating Covid-19,’projects the budget deficit to widen to KES 1.118 Trillion, about 10.4% of GDP,should government maintain the KES 2.748 Trillion expenditure.

NCBA analysts are also projecting a bias towards domestic financing due to limited financing options for government.

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NCBA Group Managing Director, Mr. John Gachora said: “Protecting the health of the public continues to take precedence at this point with the contingency measures that are in place to contain the virus will add to the economic vulnerabilities. Additional restrictions to personal mobility including self-distancing and quarantine will impact the economy further.”

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Betty Maina, CS Cabinet Secretary, Ministry of Industrialization, Trade and Enterprise Development said: “The priority for Government during the Covid-19 pandemic is to support businesses in essential services to continue production and to address reduction in consumption.”

CS Maina added: “What is clear is that we need to prepare for new business delivery models post covid19. This disease has opened up new opportunity for SMEs to actively participate in sectors such as pharmaceuticals, logistics, ICT and processed foods space which are expected to emerge stronger post Covid-19.There is an urgent need for private sector to work much more closely with government to prepare for life during and after covid-19.”

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Other highlights from the outlook report were that Kenya’s imports have dropped by over KES 60Bn so far this year, mostly in industrial supplies and goods for household use and NCBA analysts expect a further drop.

NCBA projects that over 20,000 formal jobs may be lost this year, with many more layoffs expected in the informal sector and that the health and ICT may benefit from increased investments by the government and the shift in business operating models in favour of technology.

In addition, the report says recent containment tax measures are likely to cushion businesses but unlikely to spur demand in the period under review and NCBA projects businesses to enhance savings than boost capacity from the tax relief.

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The report anticipates concessional financing from the World Bank, AFDB, IMF in coordinated response to the economic crisis and sees sustained interruptions in import deliveries due prolonged plant shut down in China and emerging bottlenecks causing immense market dislocations and economic pain. The external sector may improve with slower imports. However, deteriorating export markets presents a bigger risk given the likely slow pace of recovery and the difficulties in sourcing for alternative markets.

Prospects of lower interest rates were highlighted and said that they may also weaken shilling appeal. Lower oil import bill may however help lower the ceiling for the shilling.

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