This report was published by FSD Kenya on June 29, 2021. Anzetse Were co-authored the report.
Description
The COVID-19 pandemic, (the Great Disruption) hit the global economy in 2020.
Whereas 2020 was defined by divergent impact within and between economies, 2021 will be defined by multispeed and divergent recovery in the global and local economy.
Rich economies and China are set for a strong recovery led by the USA, mainly linked to their willingness to support incomes and deploy unprecedented fiscal and monetary support, and quick COVID-19 vaccine roll-outs which have muted the extremities of sustained economic contractions.
Low-income countries however face grimmer economic prospects due to limited access to COVID-19 vaccines and weak public finances; they will suffer more significant medium-term losses, particularly countries that rely on tourism and commodity exports, and those with limited policy space to respond.
In Kenya, divergence trends continue with macroeconomic resilience masking sustained inequalities and divergence in recovery. On one hand, inflation remains reasonable; export performance has been relatively strong (especially relative to other African countries); diaspora remittances have been robust; and the mobile money sector has demonstrated sustained resilience and growth.
On the other hand, inflation continues to disproportionately affect low-income groups; key sectors such as tourism remain deeply affected; and job recovery has been weak. Further, there are already signs of economic stress emerging linked to the March 2021 lockdown.
Local fiscal dynamics have been defined by continued financing requirements to mitigate the health and socio-economic effects of COVID-19 juxtaposed with fiscal stress linked to sustained underperformance in revenue generation; unsustainable debt levels; and high debt servicing costs.
Global developments include new global debt relief and restructuring efforts (DSSI extension, IMF SDR allocations and the creation of the Common Framework for Debt Treatments)
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