First round of restrictions on movement and a curfew in 2020 was a hammer blow to the economy. Millions of jobs lost. Incomes drastically cut. At least back then, we had cuts in personal & corporate income tax, and a 200 bp reduction in VAT to soften the blow.
[1/n]
[1/n]
Remember, it wasn’t by accident that 57.7% of all bank loans in the country were restructured, per @CBKKenya data. If nothing else, that tells you there was a huge amount of financial stress that built up over 2020.
[2/n]
[2/n]
BUT.
[There’s always a ‘but’, isn’t there?]
Treasury asked MPs to end these pandemic tax cuts. Legislators agreed to reset personal, corporate income tax levels back to their 30% top rate, with adjusted bands, on 12/22/2020. That 200 bp cut in VAT? Also gone.
[3/n]
[There’s always a ‘but’, isn’t there?]
Treasury asked MPs to end these pandemic tax cuts. Legislators agreed to reset personal, corporate income tax levels back to their 30% top rate, with adjusted bands, on 12/22/2020. That 200 bp cut in VAT? Also gone.
[3/n]
So now, here we are, with banks still holding Billions of $ in restructured loans, likely still at least 1 million plus jobs lost, income reductions still in place, a slow vaccine rollout, higher taxes *and* another set of tighter pandemic restrictions.
[4/n]
[4/n]
The economic damage from this, is going to take years to resolve, I fear. Years.
As things currently stand, GoK isn’t giving any kind of pandemic relief in 2021. Not yet. Years of fiscal mismanagement has left Treasury with a bad cash flow problem.
[5/n]
As things currently stand, GoK isn’t giving any kind of pandemic relief in 2021. Not yet. Years of fiscal mismanagement has left Treasury with a bad cash flow problem.
[5/n]
It isn’t by accident, remember, that we have a backlog of supplier debt in the $ 3 Billion range. Or that we have $ 4 B - $ 5 B in annual interest payments, at a time when our total tax revenues have stagnated at around $ 14 B - $ 16 B.
[6/n]
[6/n]
The signature waste of public resources and large scale corruption has not stopped either. Add that in, and the $ 14 Billion tax base is wiped out pretty fast.
[7/n]
[7/n]
It’s like trying to haul a loaded 18-wheel trailer with a Probox engine. GoK made the mistake of assuming that because the truck is rolling down a hill [i.e. the good times], that fragile little, abused engine can haul it uphill [pandemic + debt service].
Won’t happen.
[8/n]
Won’t happen.
[8/n]
I don’t have a precise outlook on how bad the economic damage will be, circa 2021, and into 2022. But it will be terrible.
[Fin].
[Fin].
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