Kenyan cuts

Kenyan government agree to pay cuts, curfew imposed as coronavirus cases grow

in depth

This article is part of the dossier:

Corona Chronicles: 23-27 March

By Morris Kiruga

Posted on March 26, 2020 10:32

General view shows customers shopping for essential commodities in the Naivas Supermarket in Nairobi
Agency banking at retail outlets has surged in Kenya due to Covid-19. REUTERS/Njeri Mwangi

Kenyatta and his deputy will take an 80% pay cut, while their ministers and their assistants will take pay cuts ranging from 20% to 30%.

The President also announced a raft of measures to save jobs and by extension the country’s economy.

These include:

  • Slashed liquidity ratios, lowered interest rates, and a struggle to find a balance between social distancing and a largely informal economy, since the country’s first confirmed case two weeks ago
  • A ban on imports of second-hand clothing, colloquially known as mitumba, a sector which employs tens of thousands across the country.
  • Tax relief to low income earners (earning up to Shs. 24,000, ($240), and gave tax cuts to individuals, small businesses, and corporations.
  • Suspension of the country’s three credit reference bureaus, which among them have about  2.5 million Kenyans negatively listed and unable to obtain credit from banks or fintech apps, beginning 1 April.

READ MORE: East Africa’s battle with Coronavirus

Coronavirus hitting Kenya

Kenya now has 28 confirmed cases of coronavirus, the second highest in the region after Rwanda that has 41. So it is working to halt further spreading across the country.

“Social Distancing is now our new norm, it is our new way of life,” President Kenyatta said on Wednesday. He also announced a nationwide nighttime curfew, the first in the East African nation since a failed coup in 1982, beginning on Friday.

Working closely with Kenyatta during this crisis is the newly appointed Health Minister Mutahi Kagwe. He also served in Kenyatta’s predecessor’s cabinet. Just barely two weeks into his new job as health minister, the country confirmed its first case.

Quick fix to the economy worrisome

The pillars of Kenya’s economy were already shaky at best before the pandemic made landfall in Nairobi, and the measures have just accelerated the path towards an economic collapse.

The country’s foreign and domestic debt obligations and development projects have strained its coffers, making it harder to manouvre.

Last week, the Central Bank released Shs. 7.388bn to the government to support the fight against COVID-19. The bank explained that the money was an “exceptional and unbudgeted windfall” that came from the value of notes that were rendered worthless after the Shs. 1000 note was demonetized  last year.

While the money is a necessity, its origin has caused some anxiety given Kenya has essentially printed money.

The bank has lowered Kenya’s economic growth prospects for 2020 from above 6pc to “possibly 3.4pc.”

READ MORE: Rural time-bomb remains as Kenya reacts faster than UK to coronavirus

Fragile economy just before the virus

Last December, President Kenyatta said that foreign remittances from Kenyans in the diaspora -and presumably Kenyans in the gig economy – had brought in more than traditional top foreign exchange earners such as tea and coffee.

“To signify the changing fortunes of our homeland, diaspora remittances grew by 10.9% from Sh266.19bn to Shs.295.32bn between June 2018 and June 2019, overtaking earnings from export of tea and coffee as the country’s largest source of foreign exchange,” said the President.

While he didn’t mention it, the changes also coincided with the waiver window for Kenyans who have money stashed abroad to bring back home; with no (tax) questions to be asked.

Such remittances are likely to fall as global systems shut down, and people redirect money to more pressing concerns.

The Nairobi stock exchange, for example, hit a 17-year low within days of the first confirmed case, as investors dumped stock.

Pandemic touches horticulture and air travel

Horticulture, another one of Kenya’s primary sources of foreign currency, was already on the decline before the global shutdown. “Kenya’s earnings from horticulture exports fell 7% in 2019 to Shs. 142.72 bn ($1.37 billion)” Reuters reported on 18 March .

The pandemic shutdowns has already led to cancelled export orders, not just because of border closures, but also because there is simply no demand for flowers right now.

On Tuesday, the government-run Kenya News Agency estimated that flower farms had already fired over 2,000 people and would likely fire more as the situation worsens.

While there is still a market for fruits and vegetables, it is unlikely exports will be encouraged while the country is gearing up for a period of food shortages.

The country’s heavily-indebted carrier Kenya Airways, suspended all international flights on Wednesday. Its top managers will take a 75% pay cut, with the CEO taking 80%, as they navigate the current global crisis.