East Africa's biggest economy is expected to contract by 1.0-1.5% this year as the COVID-19 pandemic pushes 2 million people into poverty and takes a toll on the government's finances, the World Bank said in a new report.
"The economy is projected to rebound relatively quickly in 2021, lifting real GDP by 6.9% year on year," the bank said in its twice a year review of the Kenyan economy, boosted by the resumption of learning in all educational institutions in January.
The government forecast 6.4% growth next year.
The World Bank said its forecast for growth in 2021 still faced significant risks, including the uncertainty around the length and severity of the pandemic, unpredictable weather conditions and the pace of the global economic recovery.
Kenya's economy contracted by 0.4% in the first half of this year, compared with an expansion of 5.4% a year earlier.
The bank said the pandemic increased poverty by 4 percentage points as incomes dropped and people were laid off from work.
"The unemployment rate increased sharply, approximately doubling to 10.4% in the second quarter," it said, citing official data.
Kenya's total debt jumped to 65.6% of gross domestic product in June this year from 62.4% a year earlier, the World Bank said, as the fiscal deficit widened.
The bank urged the government to take advantage of debt service relief offered by richer nations, to free up liquidity that would have gone into repayments.
Finance Minister Ukur Yatani told Reuters last week that the government planned to make a final decision soon on joining the G20's Debt Service Suspension Initiative (DSSI), aimed at helping poor countries weather the pandemic.
"As economic conditions allow, policy should progressively prioritise returning to a medium-term fiscal consolidation path," the World Bank said.
(Reporting by Duncan Miriri; Editing by Edmund Blair)
By Duncan Miriri
