EDITORIAL: Measures to cushion the economy needed

Editorials

EDITORIAL: Measures to cushion the economy needed

Tuesday, April 21, 2020 22:04

By EDITORIAL

The revelation by the National Treasury that the economy is expected to contract by at least 50 percent due to the Covid-19 pandemic is a critical development that will certainly test the government’s planning credentials.

This projected decline in economic activity is steep and would come with significant knocks on the country’s real GDP, employment, industrial input, real income and wholesale/retail sales.

The signs of contraction are already here — many business have closed down, economic growth has started slowing down and many people are losing their livelihoods. This could get worse if the coronavirus pandemic drags on for a long period.

In the wake of these trends and their attendant challenges, policy makers and institutions like the central bank will need to take proactive measures to cushion the economy. They must plan ahead for recovery with focus on boosting job creation, restoring demand for goods and services and helping both private and State agencies to seal the dents in their respective balance sheets.

This calls for targeted monetary and fiscal policies to protect both households and businesses through sustained investment on the social and economic fronts. Providing sound fiscal stimulus packages will be helpful towards this cause and policy makers should urgently identify areas where such support will have maximum impact. Strategies such as tweaking tax rates and payment schedules are important options at this time and should be considered.

The government should also reach out to international financial institutions to provide grants and concessional financing so that there is sufficient cash to finance the recovery phase.

It is encouraging that Kenya is already engaging various parties like the International Monetary Fund for financing facilities to supplement its official foreign exchange reserve and budget support. However, the proof of the pudding will be in the eating, so it is important for Treasury officials to be seen to do more than just make promises.

The Treasury should also review ongoing projects and programmes and prioritise spending on the most essential ones for the duration of the crisis period. Capital intensive but non-critical ventures can be put on hold to ease pressure on the limited reserves.