Kenya’s moment of truth as Treasury reviews economy

The Kenya National Bureau of Statistics (KNBS) has released a reviewed size of the economy, a move that is likely to create legroom for the National Treasury to borrow more.

Technically known as rebasing, the exercise is meant to include new activities into the computation of the country’s Gross Domestic Product (GDP), size of the national cake, in a tumultuous economic environment in which the country ran out of space to chalk up more loans.  

“The revised and rebased National Accounts has resulted in an increase in the size of GDP, increase in per-capita income, change in the production structure and revised GDP growth rates among other changes,” said KNBS Director General Macdonald Obudho.

The rebasing of the economy comes at a time when the National Treasury is set to abandon the current Sh9 trillion legal ceiling of debt issuance and revert to one that is pegged on GDP.

Currently, the percentage of debt to GDP is estimated at 64 per cent, which has left the country with very little room to increase its borrowing.

This was revealed by the International Monetary Fund (IMF) in one of its first reviews of the Extended Fund Facility and Extended Credit Facility, a Sh256 billion credit facility programme.

The IMF said Kenyan authorities have proposed an amendment to the Public Finance Management Regulations to replace the current nominal legal ceiling on debt issuance currently capped at Sh9 trillion.

Strong reinforcement

Instead, they want to replace it with a medium-term debt-to-GDP anchor of 55 per cent of GDP in present value terms, discounting for low interest.

“Staff welcomes the new anchor and introduction of an accountability requirement — whereby the government explains to Parliament how planned policies would bring the debt ratio from current to targeted levels,” said IMF.

It had been reported that Treasury intended to ask the National Assembly to raise the ceiling to Sh12 trillion. However, it now appears Treasury has abandoned that path.

“The IMF-supported programme will provide strong reinforcement for the authorities’ plans to durably reduce debt in the coming few years,” said the IMF.

Kenya’s debt as at end of March stood at Sh7.3 trillion. With the country expected to borrow about Sh1 trillion in the financial year 2021/22, the Sh9 trillion ceiling will be surpassed

Ken Gichinga, chief economist at Mentoria Economics, talked of the rebasing having two layers.

Besides this rebasing being a normal statistical accounting ritual of recognizing new aspects of the economy, African countries, said Gichinga, would like to use the exercise to “re-organize their debt communication.”

“You look at debt to GDP. And there are certain thresholds which most African countries have breached,” said Gichinga.

“The moment that you increase the nominal GDP number, obviously your debt-to-GDP goes down and it gives you latitude of borrowing.”

This will be the seventh time that Kenya has rebased its economy, the last one having been done in 2014.

After rebasing its economy, Kenya was classified as a middle-income country after its economy increased by 25.3 per cent.

The jump by Kenya’s economy into the middle-income status was driven largely by agriculture, manufacturing, and real estate sectors.

Information and Communication Technology (ICT) sectors was treated as a standalone sector, taking into account the country’s vibrant telecoms industry.

It is not just new sectors, but also better methods and source data.

In the previous times, the country rebased the economy after at least nine years. Critics find the decision to rebase their economy after seven years’ suspect.

The first official estimates of domestic income were prepared in 1947 and the first revision carried out in 1957.

Subsequent revisions were carried out in 1967, 1976, 1985, 2005 and 2014.

Last time, the base year was changed from 2001 to 2009 and saw the national statistician incorporate new sectors such as real estate and ICT into the computation of GDP.

South Africa, the second-largest economy, rebased its economy on August. Nigeria, which rebased it economy in 2014 to overtake South Africa as the largest economy on the continent, also plans to rebase its GDP again.

Some of the areas that are likely to be included in the new computation include the ‘gig economy’ which includes a lot of economic activities that are done online such as ride-hailing and food delivery.

Mobile money which has also become very popular might also be included in the computation of GDP.

dakure@standardmedia.co.ke