State urged to prepare bailouts as pandemic stresses economy

Inside the corona isolation ward in Kerugoya County Referral Hospital. The county is fitting the ward with other required amenities. [Joseph Muchiri, Standard]

The government is under pressure to craft a stimulus package to cushion the economy that is hurting from the coronavirus crisis amid calls for a bailout by MPs and business leaders.

Proposals to government include creation of a special fund to cushion traders and ordinary Kenyans unable to meet their financial obligations like repaying loans, reduction of taxes, speedy refund of value added tax, and reduction of lending rates.

"We shall have a comprehensive view and proposal by Thursday," Treasury Cabinet Secretary Ukur Yatani told The Standard, as the world continued to grapple with the pandemic that had killed over 7,500 people by yesterday.

With revenue expected to fall in the current financial year, lawmakers warned that the country may be staring at a full-blown economic meltdown that could shut down businesses and distress households if urgent measures are not taken to cushion businesses.

Counties, for instance, may struggle to raise revenue for essential services despite being allocated Sh316 billion. 

National Assembly Majority Leader Aden Duale called for measures to shield the country from the effects of the pandemic. 

“A lot of businesses will be affected. As Parliament, we must sit down with the National Treasury and create a fund to cushion businesses. The German Government has given 300 billion euros to make sure that no business is shut. In the interim, many people may not be able to pay their loans," said Mr Duale.

Emergency fund

Federation of Kenya Employers Executive Director Jacqueline Mugo also echoed the need to set aside an emergency fund.

"We need a crisis fund of sorts to cushion businesses from the impact of changing their operations such as scaling down in the short term. People will have, to a large extent, operate from home while others may not be productive. How will we cover the working population while they are not at work? That cost cannot be pushed to business alone. We are ready to support the pronouncements of government," said Ms Mugo. 

Suba South MP John Mbadi said the government would need to negotiate with friendly nations to help mitigate emerging economic challenges.

“The first thing that the government needs to do is to protect financial institutions, which are more vulnerable to economic shocks. These institutions support the economy. They need to be protected because many people may not be able to pay their loans," said Mr Mbadi.

He added: “The government needs to enter into discussions with stronger economies to inject resources into the economy. Otherwise, we will not have enough funds to undertake key projects. It is high time that State agencies take responsibility, otherwise we will come back and say ‘corona is over but we don’t have an economy'."

Countries such as France have already taken measures to cushion their economies from the aftershocks of the disease.

Kenya has three coronavirus patients with scores of suspected cases placed in isolation. 

MPs expressed fears that county governments will suffer as the situation unfolds. Doubts were also raised whether the government would raise enough money to fund national and county operations.

This means that suppliers may not be paid on time, with low circulation of money hurting small businesses and households. 

“Based on what is happening globally, I want to tell county governments that should there be shortfalls in revenue projections, they should rise to the occasion and be part of cuts that will happen across government,” said Duale.

Fiscal policies

Kipipiri MP Amos Kimunya also called for strong fiscal measures to protect businesses. "The first step is to protect human life, which the government has already done. In the coming days, there may be need to strengthen fiscal policies, and look at issues of taxation to mitigate against coronavirus effects."

Budget committee chair Kimani Ichung’wa acknowledged that the State may not raise expected revenues, but expressed optimism that current mitigation measures would be enough to cushion against a full-blown economic crisis.  

"We are hopeful that things will improve in light of the measures that the government has put in place. If we contain the virus, the revenue shortfalls may not be as bad,” he said.

Gatundu South MP Moses Kuria said the measures must target banks and aim at benefiting small businesses.

“I call upon Treasury Cabinet Secretary Ukur Yatani and CBK Governor Patrick Njoroge to cut the cash reserve ratio to two per cent to ensure banks release money into the economy,” said Mr Kuria.

He also suggested that the national and county governments pay all SMEs before paying multinationals.

Machakos Governor Alfred Mutua said although the government had taken swift measures to curb the spread of coronavirus, there was need to discuss how to cushion the country from economic peril.

“Covid-19 is a very serious disease. But even as we combat it, there is a bigger impact to the economy. There is danger of poor countries like Kenya shutting down. We would be in deep trouble because we do not have a cushion like other developed countries,” said Dr Mutua.

He added: "If we shut down factories in Machakos, for example, 150,000 people will not earn a daily wage. What we need to do is balance between taming Covid-19 and securing the local economy."

Bungoma Senator Moses Wetang'ula told the government to negotiate with banks to waive interest on customer loans.

"Banks will be out seeking to auction people's property to recover loans," he warned, adding that the government should also consider providing food rations for jua kali workers and waive VAT on medical supplies.

Nominated MP Isaac Mwaura called for budget cuts on non-essential expenditure, arguing that there will be little activity in the fourth quarter of the year.

“A credit facility should be set up at CBK to help small and medium enterprises access cheap credit to cushion and restart the economic slow-down. A six-month moratorium, especially on turnover tax, will be handy for many struggling businesses,” said Mr Mwaura.

Kenya Flower Council CEO Clement Tulezi said the industry was in a sorry state with exports down by over 70 per cent.

VAT refunds

"What we need are VAT refunds because they (government) owe us a lot of money. If they give us the money, they can help us stay afloat. We are also asking them to allow us to operate while deferring some of the duties that we pay from the port of exit. We are asking them to consider loosening landing rights so that we encourage freighters to land here. We are a perishables industry, which means that we cannot wait for next year for these tax breaks. We want them now," said Mr Tulezi.

Kenya Association of Manufacturers chairman Sachen Gudka also urged the government to clear outstanding VAT refunds to enable businesses to continue production.

Mr Gudka suggested that in case of shortages, the government could cushion SMEs by reducing VAT and corporate taxes on essential products like soaps, tissues, sanitisers and staple foods.

"It is also critical that the government fast-tracks finalisation of local content guidelines and the approval of local content policy. Additionally, the government needs to expand the scope of the Local Content Bill, 2018 to feature all sectors within manufacturing. This will enable local industries source raw materials and intermediate products locally," he said.

Genghis Capital Senior Research Analyst Churchill Ogutu said the country will need "a multi-pronged approach which combines health awareness coupled with monetary and fiscal policy support."