SLOW ECONOMIC GROWTH

Coronavirus: How Kenya can turn around its ailing economy

However, the economy, which is on its sickbed, cannot wish better with this pandemic especially when 80 per cent of all employment in Kenya is within the informal sector.

In Summary

• We are grappling with slow economic growth and serious liquidity challenges, both in government and in the private sector.

•  The coronavirus pandemic has disrupted markets globally in ways not witnessed in recent history

ECONOMY: It cannot be worse for Kenya due to the current coronavirus pandemic
ECONOMY: It cannot be worse for Kenya due to the current coronavirus pandemic
Image: OZONE

It cannot be worse for Kenya due to the current coronavirus pandemic. This is because of the fact that even without it, our economy is in shambles.

We are grappling with slow economic growth and serious liquidity challenges, both in government and in the private sector. Already, the government has over-borrowed domestically thus crowding out local investors and even then, this hasn’t eased out the cash crunch that is facing ministries, departments and agencies.  For example, special schools haven’t been given their capitation to run their affairs, and were it not for the government's order for schools to be closed, they could easily have ground to a halt.

This isn’t the only sector that is affected and one needs to look at the increase in the number of auctioneers pages in our dailies to get a glimpse of the economic crisis that many people and businesses have found themselves in. What is more worrying is the fact that even after the advertisement and re-advertisement, there are very few of these properties that are finding buyers. The real estate sector is also one of the worst-hit with land becoming a hard sell for many people.

 

The coronavirus pandemic has disrupted markets globally in ways not witnessed in recent history. Cities and indeed countries are on lockdown, especially in China and Italy. The US has just confirmed that two of its legislators have contracted the virus, as well as the wife of Canada’s Premier Justin Trudeau. Kenya is yet to disclose any of the seven victims already reported. Owing to the fact that the majority of top government officials travel a lot, one can expect that it could be a matter of time before this happens.

However, the economy, which is on its sickbed, cannot wish better with this pandemic especially when 80 per cent of all employment in Kenya is within the informal sector. This means that majority of Kenyans depend on daily transactions for them to eke out a living. Literary, people who work in the markets or construction sites live from hand to mouth and apart from salaried ones, who only constitute 20 per cent of the population.

The majority of Kenyans, therefore, cannot afford to stay home, otherwise, they would starve. The effect on government revenue is enormous as the national treasury depends on funds collected on a weekly basis to disburse to MDAs accordingly. This means that with reduced economic activity, there is need for the government to come up with a raft of measures to stimulate the economy to avoid total collapse.

To begin with, the National Treasury should work with the Central Bank of Kenya to provide a kitty that will provide cheap loans to financial lenders, so that they can pass this on to Kenyans.

Such a kitty is critical since money circulation can be easily accessed electronically through platforms such as M_Pesa and Stawi.  It is also fundamental that the government renegotiates for re-scheduling of our public debt to reduce pressure on ordinary revenue as the first charge on national expenditure.

Further, a blanket moratorium of at least one year will be crucial for personal and business loans from banks and other financial lenders to provide for a knock-on effect on business capitalisation and financial stability.

The Kenya Revenue Authority should also give a moratorium of at least six months on turnover tax for Medium and Small Enterprises to get time to recover from the shocks. It is also important for KRA to simplify its tax compliance procedures as it has become very cumbersome for startups to get the right documentation for them to be included within the tax bracket.

 

Reforms such as the issuance of ETR receipts upon payment will also fastrack tax compliance. A facility to pay off verifiable VAT refunds will also help to cushion businesses from the current crisis to meeting the gap arising from deficits from allowable expenses, due to limited transactions. 

Every cloud has a silver lining and the National Treasury should use this opportunity to clean up the budget through fiscal consolidation, as there will be a slow down on activities within the fourth quarter of 2019-20 financial year.

Expenditures such as travel, office consumables, and infrastructural projects, whose timelines have been affected and therefore should be postponed, will come in handy in this endeavor, as Treasury prepares its second supplementary budget in April.

Such savings should be divested to more productive areas of the economy, especially boosting the manufacturing of fast moving goods to take advantage of the current disruptions in China and to meet domestic and EAC market demands.

Parliament should also put a cap on how much the government can borrow domestically to cushion local businesses from being crowded out of the market. This will also guarantee investment and liquidity to spur sustainable economic growth in the country.

Let’s put our money where our mouths are!

The writer is the vice-chairman, Finance and Budget Committee of Senate