What Can Kenya Do To Protect Jobs In The Wake Of COVID-19?

COVID-19 seems to have turned the tables. The world will never be the same again. Some countries are on lockdown while others such as Kenya have imposed curfews to try and stop the spread of COVID-19.

The pandemic has disrupted economies around the world. Businesses have shut down and millions of people have been left jobless. In Kenya, for instance, businesses such as bars, hotels, clubs, and airlines have shut down with some having lost the hope of ever rising again.

How is the Kenyan economy reacting to COVID-19? How many jobs have been lost so far? How many businesses have shut down? Is there hope for them?

“COVID-19 is damaging otherwise healthy firms through four channels: falling demand and revenues, reduced input supply, tightening of credit conditions, and increased uncertainty,” says the World Bank Group in their 21st Edition of Kenya Economic Update.

According to the World Bank, protecting jobs and firms to cope with the COVID-19 pandemic is extremely important.

Advanced countries have put forward enormous stimulus packages to support firms and protect jobs, including employment guarantees, wage subsidies, working capital financing, balance sheet, and debt service relief.

“However, implementing similar solutions in developing countries like Kenya, with limited fiscal space and a high degree of informality such as Kenya may be considerably challenging,” says the World Bank.

Taking into account measures the government has already implemented including tax cuts (CIT, and turnover rates), expediting VAT refunds, and payment of pending bills, this section addresses a few other measures that could be essential in supporting firms and protecting workers to cope with the crisis.

The World Bank is of the opinion that monetary policy easing and exercising regulatory forbearance might be necessary as long as conditions remain difficult.

The core inflation rate is low, and the output gap will be turning sharply negative. There is room for monetary stimulus to support economic activity, and the CBK has begun to implement this, starting with the decision of the MPC to lower the CBK rate to 7.25 percent on March 23.

While the crisis is likely to lead to another round of increased non-performing loans, lower interest rates will stimulate activity generally, helping ease the burden on businesses whose activities have been disrupted.

It may also be appropriate to provide more liquidity support to banks that are likely to be affected by the deterioration of credit quality or facing funding pressure while at the same time facing urgent demand for short-term credit from SMEs and other firms.

The CBK could also support efforts enabling banks to provide temporary relief to ease borrowers’ financing constraints (in 2020), helping support activity, and avoid a sharp increase in NPLs.