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Economy

Kenya seeks Sh122bn IMF, World Bank aid

Central Bank of Kenya Governor Patrick Njoroge
Central Bank of Kenya Governor Patrick Njoroge. FILE PHOTO | NMG 

Kenya is seeking Sh122.5 billion ($1.15 billion) emergency funding from the International Monetary Fund (IMF) and the World Bank to support the slowing economy in the face of the coronavirus crisis.

Central Bank of Kenya (CBK) Governor Patrick Njoroge Tuesday said Sh85.2 billion ($800 million) is expected from the World Bank and Sh37.3 billion ($350 million) from the IMF.

The funds, expected by early May, will be used to fight the virus and its effects on the economy.

Travel restrictions and social distancing rules look set to impact on consumer spending, setting the stage for job cuts and unpaid leave to workers struggling with reduced cash flow.

“We are working with IMF for an emergency assistance that does not have the conditionalities of other programmes. A lot of this will be directed to budgetary support,” Dr Njoroge said, adding that more support will be sought from the World Bank.

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The World Bank funding is split into Sh5.3 billion ($50 million) emergency support for the Health ministry to help it deal with the outbreak and Sh80.1 billion ($750 million).

Kenya has 25 confirmed cases of Covid-19, and the disease is hurting tourism and farm exports, especially flowers to the European markets.

This marks the second time in years the multilateral lenders will be putting cash straight into the Treasury to be used at the discretion of the government as opposed to the recent trend where they have channelled funds straight into projects.

It reflects the worsening cash flow at the Treasury in an environment where revenues are below target amid rising debt interest payments, denying the economy cash for projects like infrastructure upgrade.

Treasury Cabinet Sectary Ukur Yatani expects government revenue collection to be hit as both imports and domestic consumption slow down in what will force a review of the national budget.

“We are looking at underperformance as a result of just Covid-19, of about Sh70 billion … in terms of revenue for the remaining three months (of this financial year),” he told Reuters, adding that the situation was evolving fast. The CBK has also cut its 2020 economic growth forecast from an initial estimate of 6.2 percent to 3.4 percent — the lowest since 2008 when Kenya was buffeted by the global financial crisis and the effects of the bloody post-election violence. Growth dropped from 7.1 percent in 2007 to 1.7 percent in 2008. The government has responded to the pandemic with tough travel, mass gathering and isolation rules meant to curb the spread of the virus.

On Sunday it imposed additional restrictions, including cancellation all flights save for cargo planes, ordered shutdown of bars and nightclubs, restaurants to operate as takeaway units, put a freeze to churches, weddings and capped funeral gatherings to 15 people.

The social distancing rules and restrictions on businesses like schools, bars and restaurants look set to impact on consumer spending, setting the stage for job cuts and unpaid leave to workers struggling with reduced cash flow.

Restrictions on foreigners coming into Kenya have delivered a big hit to the country’s tourism industry, with some hotels on the Coast reporting occupancy rates well below 10 percent compared to the normal 75 percent.

The restrictions in Europe have slashed daily flower orders to half for a continent that accounts for 70 percent of Kenya’s cut flower exports.

The government plans to pay pending bills to suppliers and quickly process company tax refunds to boost businesses’ cash flow and put money in consumers’ pockets.

The Treasury plans to release Sh49 billion to suppliers for the unpaid bills and expedite the payment of close to Sh10 billion in VAT refunds to businesses in the next two to three months.

President Uhuru Kenyatta, who has been holding meetings business executives, said on Monday that fiscal stimulus measures would be announced later this week.

Experts say some of the options on the cards include removal of tax on essential items like sanitisers and face masks, delayed payment of taxes, a rejig of income tax bands to offer higher personal tax relief that stands at Sh1,408 monthly and a reduction of VAT.

Dr Njoroge yesterday mentioned a three-pronged strategy that they will focus on in trying to contain the pandemic — including protecting affected workers and business and ultimately stimulating the economy to recovery.

“We expect a targeted fiscal package that will help push us or lessen the damage and cost of the coronavirus,” said Dr Njoroge adding this will be revealed in the coming days. “The cloud will pass and when it does, we want to recover quickly and strongly. There will be sunshine after the rain.”

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