As of 3rd April 2020, 1,094,068 people have been infected with Coronavirus globally. Out of this number, around 5% has died while 21% has fully recovered from this infectious disease according to Johns Hopkins University. Kenya has recorded 122 positive cases for Covid-19 with 4 recoveries and 4 fatalities in the same period. The Ministry of Health (MoH) has projected 1000, 5,000 and 10,000 cases of Coronavirus by early, mid and late April 2020 respectively ceteris paribus.
So far, the dusk to dawn curfew, tight transportation measures as well as the hotels, restaurants and bars regulations, has negatively affected everyone in the country hence lowering the production capacity. Thus if the projected numbers are something to go by, God forbid, then we can predict a total lockdown soon to curtail the spread of this deadly virus. Implementing the latter will inevitably lead to serious economic havoc which if not well mitigated can result in a recession in the long term.
Surico & Galeotti conducted a study on ‘Economics of a Pandemic’ and he notes that LDCs Kenya included face a great challenge of fighting Covid-19 due to the weak health systems, high dependent trade on developed countries and poor access to the internet which will affect working at home to ensure social distancing. The study concludes that the virus has caused both economic and health crises which call for countries to minimize its economic impulse by focusing on flattening the contagion curve through random testing and revising their respective health spending.
Being a random, unforeseen and substantial event that will alter the macroeconomic variables (employment, interest rates, inflation, savings, gross capital formation, price levels as well as GDP which proxies robustness of an economy) then covid-19 qualifies to be an economic shock. Its impact on supply, demand and financial market will be felt globally just like the oil crises of 1973.
In Kenya, the Covid-19 will have a bearing on both the supply and demand side of the economy and the financial market implying a disequilibrium in the economy. Due to our liberal trade model, the demand and supply of both intermediate and finished goods, as well as the service industry are at a threat. On the other hand, reduced government spending, job losses, reduced income earnings, uncertainty, curfews, and lock-downs will negatively affect aggregate demand. Financial shock in terms of Instability at the stocks market and dwindling flow of liquidity and credit in the economy is also inevitable in case of untimely interventions.
The government has made targeted state interventions to cushion the economy from shocks and enormous effects of this extra-ordinary devastating global tragedy. These interventions are aimed at giving impetus to the economy and ensuring the security of jobs as well as provide some certainty for both employees and their employers. On the top is 100 % Tax Relief for persons earning a gross monthly income of up to Ksh. 24,000, reduced VAT to 14% from the current 16% as well as the reduction of Income Tax Rate (PAYE) from the current 30% to 25%. The government has also appropriated Ksh. 10 Billion to the elderly, orphans and other vulnerable members of our society through cash-transfers to cushion them from the adverse economic effects of the COVID-19 pandemic. These measures are aimed at increasing the disposable income of consumers.
To enhance the liquidity in the economy and ensure the business remains afloat, the government has reduced the corporate tax to 25% from the current 30% as well as reduction of turnover tax from 3% to 1% for all Micro, Small and Medium Enterprises (MSMEs). Additionally, the MDAs have been directed to clear the verified pending bills amounting to Ksh. 13B immediately and the Kenya Revenue Authority (KRA) to expedite the payment of all verified VAT refund claims amounting to Ksh. 10 Billion. Also, listing with Credit Reference Bureaus (CRB) of any person, Micro, Small and Medium Enterprises (MSMES) and corporate has been suspended temporarily
Further, the Central Bank of Kenya (CBK) monetary policy committee has lowered the Central Bank Rate (CBR) by one percent from 8.25% and cash reserve ratio (CPR) to 4.25 percent from the current 5.25 percent as well as injecting additional of Ksh. 35B in the economy to support business borrowings. This move will ensure the availability of liquidity to foster the main role of commercial banks of credit creation.
Also, the government recognizes support from other countries, development partners, multinational corporations, companies, and individuals to fight the pandemic. To this effect, an Emergence response fund has been established to mobilize funds for emergence response towards containing the spreads, effects, and impact of covid19. The volunteer salary deductions by the president, deputy president, senior ranking officers of National and counties Executive, judiciary and the legislature will serve as the seed capital of that fund
It is no doubt that the Covid-19 has brought the world economy to a standstill and its effect will be felt for the better part of the year. China and the United States of America (USA) which are the first and second-largest economies in purchasing power parity respectively have been hit hard by the pandemic signalling a long period of post Coronavirus. Most probably, this will be the same for Kenya. The National Treasury and Planning has projected that the country will lose close to Ksh. 130B for the remaining part of the year due to coronavirus. This throws the implementation of the Government’s Big Four Agenda, the MTP III, and other relevant plans into jeopardy.
As additional measures to tackle this pandemic and lessen the impact on the economy, the government spending should be devoted to health to flatten the Covid-19 contagion curve, seek freeze of debts servicing obligations, capital control to avoid capital flight, support informal sector which depends on daily wages, ensure uninterrupted supply of food and basic utilities such as water, especially to city dwellers.
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