Deals and Investment - Finance - News around Africa - Profiles - March 25, 2020

COVID-19: Kenya Seeks Sh122bn IMF, World Bank Aid

March 25, 2020

8 min read

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

The Governor of the Central Bank of Kenya (CBK), 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 limits and regulations on social distance are likely to affect consumer spending, setting the stage for job losses and unpaid leave for employees dealing with decreased cash flows.

“We are working with IMF for an emergency assistance that does not have the conditionals 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.

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. Kenya is seeking financial aid to turn this situation around.

This is the second time in years that multilateral lenders would bring cash straight into the Treasury to be used at the government’s discretion as opposed to the recent pattern in which they have channeled 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 said, 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 placed new limitations, including cancellation of all flights reserved for freight aircraft, ordered the closure of bars and nightclubs, restaurants to serve as takeaway units, putting a moratorium on temples, weddings and limited funeral gatherings for 15 people.

Restrictions on foreigners arriving in Kenya have given a big hit to the tourism industry in the region, with some hotels on the coast recording occupancy rates well below 10 percent compared to usual 75 percent.

Europe’s restrictions have slashed regular flower orders to half for a continent that accounts for 70 percent of Kenya’s cut flower exports. This cut in revenue cut is one of the foremost reason Kenya is seeking financial aid

The government plans to pay overdue bills to suppliers and process corporate tax refunds quickly to improve the cash flow of companies and bring money into the hands of consumers.

The Treasury plans to allocate Sh49 billion to suppliers for unpaid bills and accelerate the payment of nearly Sh10 billion in VAT refunds to companies over the next two to three months.

Experts say some of the options on the table include eliminating tax on critical products such as sanitarians and face masks, deferred tax payments, a rejig of income tax bands to give higher personal tax relief that stands at Sh1,408 monthly and a drop in 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, he added that 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.”