Curbing corona a litmus test for Kenya economy
Friday, March 27, 2020 0:01
By BASTON WOODLAND
Based on a Mervyn King’s book The End of Alchemy there is an anecdote of a young man who was studying theology at Oxford.
The man was called to defend his thesis before a panel of eminent priestly figures, chaired by a distinguished philosopher who started by asking him, “Tell me, does God have much of a role in theology these days?” Startled by the question, the young man never recovered from that question. Today, I will in the same vain pose my question: “Do banks and central banks have much of a role during the current global health pandemic?”
What the entire world is presently facing is a global health crisis with the inevitable outcome of a financial crisis. How countries will emerge thereafter isn’t rocket science, as it simply lies on how well they will manage to contain both the health crisis and their respective economies. There is a simple saying that goes, “God may as well have created the universe but we mortals created paper money and risky banks.” And there couldn’t be a better time to manage our paper money and sustain our economy than during this pandemic.
Gleaning through the financial crisis of 2008-9, one thing remains constant. The global economies were disastrously hit because governments, through their central banks, made expensive “mistakes”.
Banks and central banks knew the symptoms of the financial crisis but failed to dig out the underlying cause(s) of the problem. The central banks of Europe and the US, for instance, proposed money stimulus such as lower interest rates to cater for trade deficits and increased the demand in lending which only induced people to take in more credit. In the end, the bank balance sheets expanded rapidly before finally exploding because everyone was trying to perform an “economic experiment”.
Before any health policy, fiscal or monetary policy is introduced by the government aimed to cushion the economy during this crisis. It is very important to understand the kind of economic structure that we have as a country. A larger percentage of our population survives on what is popularly known as “hand-to-mouth”, which means folks who cannot place food on their tables if the country was to go on total lockdown. If asked to stay at home for 48 hours, the majority would say “Heri corona inipate nikiwa kazini.” an acclamation that would undoubtedly increase the spread of the virus.
Our inability to anticipate all possible eventualities means we will make judgments that may very well turn out to be mistakes, mistakes that lie at the very heart of any financial crises story.
What we should, however, refrain from during this pandemic is creating a high level of fear and panic that may result in unreasonable measures. Once there is fear and financial panic in any sector of the economy, then we are going to hit a sharp downturn.
It is time for governments to instil confidence in businesses and its citizenry while trying to contain the virus. Which brings me back to my initial question, “Do banks and central banks have much of a role during this pandemic?”
Whatever policies they will come up with will have a great impact on our road to economic recovery post-Covid-19.
May we never come to a point where we ask ourselves “How did this happen? Was it a failure of individuals, institutions or ideas?” Stay safe!