This archive report was first published on 18 May 2020.
As the world grapples with the Covid-19 pandemic, Kenya's economic response has been a subject of intense debate. In a bid to mitigate the effects of the pandemic, President Uhuru Kenyatta has announced several fiscal and monetary interventions.
One of the key measures is a 100 per cent tax relief for individuals earning up to Ksh24,000 ($225) per month, a reduction in income tax rates from 30 per cent to 25 per cent, and a decrease in Value Added Tax from 16 per cent to 14 per cent.
The Central Bank of Kenya has also lowered the Central Bank Rate (CBR) to 7 per cent from 8.25 per cent, a move aimed at signaling commercial banks to lower their lending rates and make resources available for spending by consumers and investments by businesses.
While the government's response appears to borrow from Keynesian economics, it also incorporates elements of Monetarist economics, which emphasizes the importance of money supply in determining GDP and the price level.
However, economists remain divided on the effectiveness of the government's response, with some arguing that it is insufficient to safeguard the economy and stimulate growth. The debate highlights the need for careful consideration of economic policy tools and the importance of finding a balance between fiscal and monetary interventions.
Joshua Laibon, a manager at PricewaterhouseCoopers Kenya, notes that the economic policy tools employed by the government require careful consideration to safeguard and stimulate the micro and macro economy during and after the Covid-19 pandemic.
