Kigali Special Economic Zone, one of the major business establishments in East Africa- Photo Cyril Ndegeya
The East Africa Business Council (EABC) has recommended to governments of the East African Community member states to take financial measures that will mitigate the impact of coronavirus in the community member states.
In it’s recommended measures the council requested Central Banks in the EAC region to restructure loans by allowing a considerable period for Non-Performing Loans (NPLs) and prioritize payment of domestic debts.
“This will give relief to both lenders and borrowers at the time of COVID-19 pandemic and inject liquidity in the market while enabling sustainability of businesses especially SMEs,” the EABC statement issued April 14 reads.
EABC also asked Central banks to extend lending facility to commercial banks, to consider lowering the repo rate and reserve requirement ratio and to review existing treasury Bonds/Securities rediscount (Open Market Operations) through buying back bonds at the prevailing market rate.
“The lower Central Bank Rate will incentivize commercial banks to lend at lower rates to the private sector and will allow commercial banks to have more liquidity and enough lending capacity, while also enabling commercial banks to have sufficient funds for lending to the private sector and provide liquidity to the economy,” EABC said.
Some of these recommendations came after Rwanda central bank (BNR) had taken big steps towards implementing the financial measures to mitigate the impact of coronavirus.
For example, before Covid-19, BNR had retained its repo rate (5.0%) for the third consecutive year and after Covid-19 it announced releasing liquid money worth Rwf50billion for commercial banks to be able to lend to private businesses affected by Covid-19.
This also came with directives to relax standing loans repayment procedures which include relief on repayment deadlines.
Bank of Kigali (BK), Rwanda’s biggest commercial bank by assets ($1billion) officially followed suit by relaxing regulations on personal and business loans and releasing over Rwf282billion to government to distribute as cash or relief items to citizens affected by Covid-19.
In Kenya, the Kenya Central Bank released Shs7.388billion to the government to support the fight against COVID-19. The bank explained that the money was an “exceptional and unbudgeted windfall”
The bank has lowered Kenya’s economic growth prospects for 2020 from above 6% to possibly 3.4%.
Rwanda and Kenya have also already announced April salary cuts and forfeiting for their top government officials as part of the endeavors to cushion the impact of Covid-19 on their economies.
With such actions, the council expects the community wich has a grip on the inflation, unemployment and exchange rates of which Rwanda estimates to maintain a headline inflation of 5% as rates are cushioned by increase in export products.
On fiscal policy, the council said that EAC governments need to increase minimum taxable salary income to at least $250r. They also suggest that member states should reduce income tax rate for companies to 20%, and corporate tax rate to 20% but also allocate enough funds to cater for outstanding VAT refunds.
Kenya has proposed, at this point, a 100% tax relief for low-income-earning persons (earning gross monthly income of up to KES 24,000), a reduction in the top Pay-As-You-Earn (PAYE) rate, and other changes such as cash transfers, credit relief, lower Value Added Tax (VAT), and a corporate tax cut.
EABC said that if this is done, it will increase the disposable income of low earning workers to enable them to mitigate the COVID-19 impact and increase the net salary of employees to enable workers to have extra money to spend on the advent of COVID-19 pandemic.
On cross-border cargo flow, food security, essential commodities supply and movement of persons, which are key areas of the region trade for over 177 million people and a GDP of US$ 193.7 billion (as of 2019), the council said EAC Partner States should adopt a coordinated preparedness approach with uniform enforcement procedures in combating the COVID-19.
Already some of these measures are in place with Rwanda, Uganda and Kenya restricting their border movements by conducting curfews of border posts and on-site testing of cargo transporters and people officially crossing their borders.
“New measures on facilitating flow of cargo across the region should be well elaborate and understood by all stakeholders to avoid misinterpretation enforcement hiccups,” the council said.
With the already halted air travels, except cargo flights, the council also advised partner states to devise post-pandemic recovery strategy to revive the air transport sector to avoid complete closure of business.
