How countries are deploying stimulus packages in the fight against coronavirus

The coronavirus pandemic has seen a global scramble to cushion economies and citizens with governments unveiling unprecedented stimulus packages.

In Kenya, the Central Bank of Kenya (CBK) has introduced various mitigation measures aimed at lessening the impact of the pandemic on businesses and individuals.

Five days ago, the apex bank gave the government Sh7.4 billion worth of bank notes that was retained during the demonitisation of Sh1,000 notes last year after individuals that were not ready for scrutiny failed to return them.

This was in addition to, among others, a deal with banks and telecoms operators that saw enhanced mobile money bands to promote cashless payments as well as a waiver for transaction fees for amounts of Sh1,000 and below. Banks also agreed to reschedule loan repayments for distressed borrowers for up to a year.

And on Monday, the bank cut its benchmark rate by the largest margin in three and half years and lowered the amount of deposits banks must hold with the regulator in efforts to boost flow of affordable loans in an economy plagued by the coronavirus outbreak.

The benchmark rate was cut by 100 basis points or one percentage point to 7.25 percent, a pointer of policy bias towards cheaper loans in an environment where the government is not controlling cost of credit.

The regulator also reduced the cash reserve ratio for commercial banks to 4.25 percent from 5.25 percent, saying the move will release an extra Sh35.2 billion for lending to customers hit by the outbreak, the CBK said.

But it is increasingly apparent that monetary policy alone will not be enough to cushion the shock for businesses and citizens.

This puts the ball squarely in governments' court. From loan guarantees to tax relief and straight-up cash handouts, the government should borrow a leaf from many countries around the world which are rushing to introduce fiscal relief measures to cushion their citizens.

This is because as the human and economic costs mount, even more drastic steps may be required to cushion Kenyan consumers and business reeling from the impacts of the pandemic.

Calls are already mounting for the Treasury to create a stimulus package to support businesses in the wake of the coronavirus-induced slump. The ideal package, say experts, would seek to enhance liquidity and reduce the impact of potential economic disruption.

As shown by other countries already, such a stimulus package may include a temporary reduction of corporate taxes, zero-rating of essential supplies, coordinated customs reduction, reduction or scrapping of excise duties and taxes on the flow of money, and payroll tax cuts to stave off layoffs and enable businesses to improve employee benefits during the crisis.

Kenya, which has 25 confirmed cases of the virus by yesterday, has so far banned entry of travellers from all countries and encouraged employers to allow staff to work from home. Already many companies, including airlines, malls, hotel chains and some industries, are reporting low business as customers keep away from travel or establishments.

“We are seeing huge stimulus packages being announced in USA, UK, Italy and Germany. While our government does not have cash piled up to directly transfer into our pockets, a temporary relief from paying of statutory dues, and taxes would allow businesses to continue and navigate through extreme disruption caused by this pandemic,” argues Kunal Ajmera, the chief operating officer at Grant Thornton, an independent accounting and consulting firm.

The Federation of Kenyan Employers (FKE), for instance, has called on the government to reduce the Pay-as-You-Earn (PAYE) tax to cushion workers against salary cuts.

FKE chief executive Jacqueline Mugo argues that the tax relief will help workers foot the cost of basic goods that is likely to go up on reduced supply as the virus takes its toll on local manufacturing and major import economies.

Several countries have already announced similar packages which seek to reduce the cost of doing business and shield businesses from collapse. Tourism, retail, external trade and logistics services have been the hardest hit by headwinds arising from the Covid-19 outbreak.

In the United States, President Donald Trump has already signed into law a relief package to provide sick leave, unemployment benefits, free testing, and food and medical aid to people affected by the pandemic.

Also on the table is an economic stabilisation package that would send direct payments to taxpayers and provide loans to businesses.

In the United Kingdom, finance minister Rishi Sunak unveiled a gigantic stimulus package, including the government paying the wages of workers throughout the country.

Germany has a supplementary budget of 156 billion euros to counter the effects of the pandemic. In Austria, the government has announced an aid package of up to 38 billion euros to deal with the consequences of the coronavirus.

Dubai’s package includes reductions in water and electricity bills by 10 percent and deposits paid for water and electricity connections by 10 percent.

Indonesia is considering expanding a fiscal stimulus to fight the impact of the coronavirus on the same scale as that introduced after the 2008 global financial crisis, its finance minister said on Thursday.

Italian prime minister Giuseppe Conte is preparing to increase the fiscal stimulus programme for the fourth time in a month.