Leave the Covid-19 relief measures in place

Since the advent of the Covid-19 pandemic, governments have deployed both fiscal and monetary measures to keep the impact of the crisis on economies and livelihoods in check.

This has been done regardless of the size or the strength of economies, the goal being primarily to prevent a health emergency from spiralling into a full-blown economic crisis.

The fiscal and monetary measures have seen billions of dollars in relief extended to ordinary citizens around the world providing the much-needed respite from the pandemic.

Kenya has not been left behind.

Cushioning

The Central Bank of Kenya (CBK) made the first move in March, effecting numerous steps to sustain liquidity in the economy at a time when measures to prevent the spread of the virus such as the cessation of movement brought economic activity to a near standstill.

For instance, the banking sector regulator asked mobile-money operators to waive fees on all transfers not exceeding Sh1000 in a boost to cashless transactions in Kenya.

The CBK would further extend transaction limits while freeing up the costs of transferring funds between banks and mobile wallets.

To expand liquidity in the economy, the CBK lowered its benchmark lending rate to seven percent along with a trim on the cash reserve ratio, which freed up Sh35.2 billion in new funding to the lenders.

On its part, the National Treasury prepared amendments supporting lower tax rates at the directive of President Uhuru Kenyatta, supporting the economy during the pandemic.

The National Assembly subsequently approved the amendments that saw the rate of pay as you earn (PAYE) and corporation tax comes down to 25 per cent from 30 per cent.

The amendments also waived all taxes on Kenyans earning below Sh24,000 while the value-added tax (VAT) rate dropped to 14 from 16 per cent.

Moreover, the Treasury drafted an economic stimulus program which rounds off to more than Sh58 billion and approved in the 2020/21 budget-making process extending cushioning to key sector such as tourism, small businesses and households.

On the overall, the cushioning measures have been essential in cushioning the economy, which has seen its worst year in recent history.

Data from the Kenya National Bureau of Statistics (KNBS) show that the country’s unemployment rate doubled between April and June this year to a significant 10.4 per cent after more than 1.7 million Kenyans lost their jobs.

Meanwhile, the Kenyan economy marked its first regression in nearly 12 years within the same period after GDP contracted by 5.7 per cent to leave the economy in a near recession.

Most recently, the World Bank Group revealed two million more Kenyans had fallen into poverty owing to the pandemic’s hit on the economy.

Premature end?

Unfortunately, most of the cushioning measures are now lapsing even as the country continues to witness tough times and tremors from the pandemic.

Nearly all of the protection measures come to an end at the close of the year in spite of the fact that the pandemic continues to rage on. [Parliament was debating some of them as this article was posted]

The Kenyan economy is yet to fully reopen as Covid-19 mitigation restrictions persist and Covid-19 linked fatalities near the 2000 mark and infections close in on the 100,000 mark.

Listing of defaulters on credit reference bureaus (CRBs) was the first to fall at the start of October.

Subsequently, both the CBK and the National Treasury have indicated plans to end more relief measures which would see a return to the pre-Covid-19 environment.

For instance, free mobile-money transfers below Sh1000 are set to lapse on the last day of 2020. Further, new tax laws amendments seek to revert key tax rates to pre-Covid levels including VAT at 16 per cent, PAYE and corporation tax at 30 per cent.

If effected, the planned tax reversals will weigh hard on Kenyans who have relied on the measures to lessen the impact of the pandemic on livelihoods.

In its defence, the National Treasury has stated the need for reinstatement of lost revenues estimated at Sh65 billion.

The Kenya Revenue Authority (KRA) has reported that revenue collected in the first quarter of the 2020-21 fiscal year, for instance, dropped 15 per cent compared to last year – a fact that needs to be considered in light of the tough times ahead for all segments of business.

Extend relief measures

Nevertheless, it would be prudent for the government to consider keeping the cushioning measures in place as other countries and regions have done – for this is set to be a very quiet Xmas, and a challenging season, and 2021 remains a tough year ahead.

Potential economic rebound in 2021 will most likely be premised again on fiscal and monetary interventions.

In the United States (US), legislators have been burning the midnight oil to reach a second stimulus deal estimated at $900b which covers among others $600 personal cheques and $330bn in support to small businesses.

This push has incidentally been bipartisan in spite of divisions in the aftermath of the November Presidential elections.

The deal will serve to extend cushioning measures from an earlier $2.1trn deal reached in March which saw stimulus cheques of $1,200 and $300 on a weekly basis to individuals as unemployment benefits covering between 10 and 16 weeks.

On its part, the European Union finally approved its $2.2 trn €750bn as a pandemic relief package financed by joint debt by member states.

The approval is however against opposition from members such as Hungary and Poland who are worried that disbursements under the plan might be premised on the obedience of the rule of law by governments.

Moment of reckoning

The government still does have the final say in the stay or lift of cushioning measures that came to play about nine months ago. The National Assembly may be first up on the line as Members of Parliament (MPs) discuss ending the tax relief measures.

Meanwhile, President Kenyatta, with his focus on people’s welfare should consider extending the relief measures in view of the prevailing Covid-19 situation.

While the present measures may be lapsing, the government has the powers and responsibility of crafting new buffers to support the rebounding economy into the new year.

For instance, Treasury through expected supplementary budgets early in 2021, may seek approval of additional spending in key economic segments to rally a potential output recovery.

Best for 2021 to all.

-The author is director, EABC and Trustee Brand Africa.

@DiazchrisAfrica