Broke Kenya now turns to donors for Sh122b

Red cross Volunteers team demonstrates how to evacuate corona-virus victim as part of preparedness to handle corona-virus patients . This was an exercise at Kakamega county headquarters on March 24, 2020. [Benjamin Sakwa]  

Kenya has sought outside help in the fight against coronavirus pandemic, with the World Bank and IMF pledging Sh122 billion.

The Government, which has been running on empty coffers, made the appeal to the development agencies as the novel coronavirus continued to wreak havoc on the country’s health and economic fronts.

This as the country stares at a major slowdown in its economic growth this year, which has been scaled to 3.4 per cent from an initial forecast of 6.2 per cent.

It will be slowest growth since 2009 when it expanded by 2.7 per cent following the effects of the post-election violence a year earlier.

Central Bank of Kenya Governor Patrick Njoroge, in his press briefing yesterday, confirmed that the $50 million (Sh5.3 billion) would be injected directly into the health system, which has been stretched by the increasing need for the country to arrest the spread of the pandemic.  

Another Bretton Wood institution, the International Monetary Fund, promised to give another $350 million (Sh35 billion), which will be used to deal with the economic effects of the virus.

“This is assistance that does not have conditions,” said Njoroge, contrasting the funds from the stand-by arrangements, which normally come with strings attached.

Besides helping pay pending bills, the funds from IMF will be used to replenish the country’s foreign exchange reserves.

The World Bank has committed to give another $750 million (Sh75 billion), which the country will use to support the well-being of poor people, some who may be rendered jobless as the economy comes to a standstill.

This comes at a time it has become apparent that National Treasury only had Sh2.8 billion in its account by end of February, which was too little to help combat the effects of the coronavirus pandemic.

Officials from CBK and National Treasury have been burning the midnight oil to avert a financial crisis, with President Uhuru Kenyatta promising to settle pending bills and VAT refunds to ensure continuous flow of money into the economy.

On Monday, CBK’s Monetary Policy Committee (MPC), chaired by Dr Njoroge, projected that the virus would devastate the economy this year, slowing it down from growth of 6.2 per cent to 3.4 per cent.

“The foreign exchange market has recently experienced some volatility largely due to uncertainties concerning the impact of Covid-19 and a significant strengthening of the dollar in the global markets,” said the governor.

The MPC also lowered its benchmark lending rate – the Central Bank Rate (CBR) – and slashed the cash reserve ratio (CRR) as it sought to leave banks with more money for onward-lending to consumers who have started feeling the weight of the pandemic.

The CBR was reduced by a whole percentage point and CRR – or the fraction of cash deposits that banks are required to maintain with CBK daily – reduced from 5.25 per cent to 4.25 per cent.

Banks now have an additional Sh35.2 billion to lend to borrowers distressed by the coronavirus after the CRR was slashed. However, CBK issued additional conditions, noting that this requirement will only be lifted for banks that demonstrate that they will lend.

In case of repurchase agreements (repos), where a bank sells government securities to investors and buys them back, the period for paying it back has been pushed from 28 to 91 days.  

Moreover, after CBK brokered for extension or restructuring of personal loans, it has relaxed the requirement on classification and provisioning for loans that were performing on March 2, 2020, it has now said that it will allow for flexibility.

IMF Managing Director Kristalina Georgieva, following a conference call of G20 finance ministers and central bank governors, said some developing countries would benefit from emergency finance they had put in place.