Coronavirus Pandemic and The Economic Threat, What Next for Kenya?

Coronavirus Pandemic and The Economic Threat, What Next for Kenya?

The Kenyan economy has already been jolted by the widespread disruptions to businesses from the coronavirus pandemic.

Already, the Kenyan Government has taken some interventions to help households and businesses weather the economic pain as a result of the impact rising from the pandemic.

The first case of Coronavirus infection within Kenya’s borders was reported on the 13th of March 2019. 

The Kenya Private Sector Alliance (KEPSA), 61.0% of businesses surveyed reported that the Coronavirus has had a direct negative impact on their businesses.

Financial and telecommunication institutions have announced several relief measures as a directive from the Central Bank of Kenya.

Safaricom and Airtel Kenya have waived transaction costs on mobile money transfers for the next 90 days.

In addition, transaction limits and the amounts individuals can hold in their mobile wallets have been increased.

Daily transaction limits have been increased from Ksh70,000 to Ksh150,000 while the daily limit for mobile money transactions raised to Ksh300,000 from Ksh140,000.

Kenyan banks Announce Loan Relief For Businesses

On the other hand, financial institutions, Equity Bank Group, Stanbic Bank, Absa Kenya have announced measures that offer relief to their clients to prevent a meltdown driven by rapidly falling demand for goods and services.

“While the immediate objective is to reduce the risk of transmission of COVID-19 (Coronavirus) by handling banknotes, this will also reduce the use of cash in the economy over the medium term,” said the Central Bank of Kenya.

“The banking industry through the Kenya Bankers Association (KBA) has adopted Guidelines towards ensuring the safety and security of bank customers, employees and other stakeholders during this unprecedented time when the country responds to the Coronavirus Disease (COVID-19),” said Joshua Oigara Chairman, Kenya Bankers Association.

Oigara who is also the KCB Group CEO added that: “Relief to borrowers will include extensions in repayment periods (loan tenor) and other restructuring arrangements.”

“We believe that coronavirus may have a 10.0% to 25.0% impact on GDP growth for the year 2020. The 10.0% impact is an optimistic case in the event the outbreak is contained, and a 25.0% impact in the event it is not contained,” Analysts at Cytonn Investments state in ‘Impact of Coronavirus to the Kenyan Economy’ report.

“As such, the coronavirus could reduce Kenya’s GDP growth to a range of 4.3% to 5.2% for the year 2020 depending on the severity of the outbreak and economic implications for Kenya.”

Monetary stimulus, fiscal packages

Analysts at Genghis Capital have welcomed the interventions in place but, the lack of policy coordination (with the fiscal side) remains the weakest link.

“We think there should be a further downward recalibration of the expected FY2019/20 Supplementary Budget II to factor in the potential dip in revenue (mainly shortfalls in Customs, Import Duty and VAT Imports),” they note in their ‘Covid-19: Kenya ‘Phase I’ economic policy response’.

The Kenya Association of Manufacturers (KAM) proposes that the government should consider halving relevant taxes for small and medium enterprises (SMEs), including VAT from 16 percent to 8 per cent. 

KAM further proposes corporate taxes to be slashed from 30 percent to 15 percent for the next six months while the government should also consider zero-rating VAT on essentials including soap, tissue, sanitisers and staple foods for the next six months.

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