Step up corona mitigation response

In every crisis, there is always a silver lining and that has been the private sector in helping mitigate the coronavirus pandemic at the cost of their revenues.

First was payment service providers (PSPs) of mobile money setting measures that will facilitate increased use of mobile money transactions instead of cash such as eliminating charges on mobile money transactions up to Sh1,000. The current tariff for Sh70,000 transactions to apply to a limit of up to Sh150,000.

The PSPs and commercial banks will eliminate charges for transfers between mobile money wallets and bank accounts, which are commendable concessions. But even at this period of a crisis, the regulator needs to get messaging right because impressions last even after we abate the crisis.

In regulation, its fundamentally important for the regulator not to act overarchingly, or even perceived to be one because it dents investor confidence in that sector.

The statement released by the Central Bank of Kenya (CBK) to the effect of the agreed measures by PSPs gave the impression that it’s within the regulator’s discretion to price mobile money transaction fees when it’s solely within the discretion of PSPs.

Second, then came the State House briefing on the emergency measures to mitigate the adverse economic effects on bank borrowers from coronavirus pandemic after the Kenya Bankers Association met with President Uhuru Kenyatta and CBK.

Commercial banks also gave much of their concessions like meeting the cost of restructuring loans, providing relief on personal loans, offer an extension of their loans for a period of up to one year et al.

We now come to the government, apart from the medical and public health response what are the concessions, especially on the economic costs of this crisis that the government has taken in? We are yet to see that when a timely response is needed.

Now, analysts are predicting the Monetary Policy Committee will be cutting benchmark lending rate just like Ghana, Egypt and South Africa.

This move is ineffective because the coronavirus is first and foremost a public health crisis, not an economic issue.

Therefore, monetary policy is ill-suited as a response to the pandemic because it is very limited.

Emerging economies are missing the point if they are simply following the US Federal Reserve, which was the first to cut the benchmark rate because economies are structured differently.

The reason why the US Fed Reserve cut its benchmark lending rate to zero despite being in a low-interest rate regime was to simply respond to the panic of the stock market tumble.

At zero percent interest rates, while their cashflows dwindling, it is cheaper for corporates to borrow and meet the bills with some buying back their falling stocks to stabilise their value.

And this cannot be replicated in emerging markets. What is needed for emerging economies at this point of the crisis is for monetary policy to take a back seat and deploy aggressive fiscal measures for macroeconomic stabilisation.

First, governments should not spare any expense on health especially.

In Kenya, it is reported that no private hospital has the Covid-19 testing kit when epidemiological testing where the contacts of infected people are identified, tested in turn and isolated as fast as possible. Which begs, where is the Sh8 billion World Bank extended to the government for the coronavirus response?

Second, governments need to partially or full guarantee loans to businesses affected by the coronavirus for them to keep people employed and out of insolvency.

For example, Kenya is the second top exporter of cut flowers in the world but flower farms have already axed about 30,000 casual workers while more than 40,000 permanent staff have been asked to go home with industry players warning that headcount could drop to 20,000 in the next few weeks.

It is time for the government to come through for private sector because if this is layoffs and insolvencies spiral down to many sectors, the domino-effect is a systemic shock to the economy and many businesses will fail to resume after the pandemic.