Shaping Macro Economy in Response to COVID-19 in Kenya: A Responsible Economic Stimulus and a Stable Financial Sector

Kenya experienced overall macro stability and modest growth of 5.5% for the period 2017 to 2019. This economic performance was achieved despite fiscal health challenges owing to fast rise in stock of public debt. The onset of COVID 19 pandemic in March 2020 however subdued the economy owing to swift containment measures that were imposed to limit the spread of the pandemic. As a result, Kenya suffered its first recession in nearly two decades. Poverty levels increased and about 1.7 million people lost their jobs between March and June 2020 and workers in the services sectors, particularly women were hit hardest due to disruptions in demand and supply chain. Fiscal health of the country deteriorated further amidst rising debt distress risk, while the external sector also weakened albeit resilience in remittance receipts. The government responded fast by instituting a broad range of macroeconomic policy interventions. From a fiscal policy, the initial response was to take the country back to its economic growth trajectory through a raft of a combination of tax relief and expenditure measures as the first economic stimulus. Monetary policy responses focused on providing liquidity to businesses while other interventions included mobile money transactions to enhance cashless transactions as a way to reduce the contagion and enhance financial inclusion. The government should not only reignite fiscal consolidation efforts but also curb domestic borrowing in the ensuing budget financing while keeping an eye on rise in non-performing loans for more effective monetary policy response.