President William Ruto’s state visit to the US last week may have stolen the thunder from one of the most consequential economic information pack.
The Kenya National Bureau of Statistics released the 2024 economic survey last week on May 20. This is probably the single largest source of key economic data and indicators that must inform government, business and individual consumer decisions annually.
The economic survey of the foregoing fiscal year cannot have come at a better time, especially when Parliament is undertaking public hearings on the 2024/25 budget proposals and the 2024 Finance Bill. Basic economic wisdom dictates that both the executive and parliament must be informed by evidence available before them as they finalise on these two pieces of critical legislations.
In reality, it is not possible to unpack all details that businesses and consumers need to know from the economic survey in a single article. This article, therefore, will limit itself only to the big numbers and attempt to draw a connection to some key proposals in the 2024 Finance Bill.
Key questions are: what do these numbers say about the present economic realities of Wanjiku? What must the policymakers take into consideration from this survey as they deliberate the proposed taxes and revenue-raising measures for the government? Based on the evidence present in the economic survey, what must the citizenry demand from their leaders?
Right from the onset, the 2024 economic survey evidence shutters the popular notion advanced by Kenya Kwanza leaders that they are unable to deliver on key promises because they suffer from empty coffers. According to the survey, the government had at least Sh3.025 trillion at its disposal from both ordinary revenues (taxes and Appropriation -in- Aid) and grants in the 2023 fiscal year.
However, the government expenditure grew by 26.6 per cent to close at Sh3.98 trillion. This implies that the government borrowed at least a net of Sh955 billion to bridge the deficit between revenues and expenditures. While the Gross Domestic Product (GDP) growth rate rebound to 5.6 per cent from a revised growth of 4.9 per cent in 2022, this does not cure what evidentially appears to be a spending problem for the government.
Curiously, there does not seem to be any major public projects initiated by the current administration, almost 20 months into office. At the same time, the National treasury has struggled to release funds for key services like education and devolution. The pending bills menace continues to ravage businesses by robbing them of working capital, and the burden of servicing loan facilities taken to deliver public contracts. This begs the question as to where exactly are the collected funds going?
The second important macroeconomic indicator, especially for Wanjiku, is the employment data. The survey points towards a sustained informalization of the economy. The formal sector accounted for a paltry 15 per cent (122.8 thousand) of the estimated 843.7 thousand jobs created in 2023. The informal sector created the remaining 720.9 thousand jobs. Overall, the total number of jobs, excluding small-scale farming and pastoralists activities, grew from 19.1 million to 20 million in the year under review.
Of this, the modern side of the economy accounted for only 3.1 million jobs. Tying this with the Kenya Revenue Authority data of June 2023, where only 6.3 million filed for tax returns, one can now start seeing the connections to biased tax burden. As indicated consistently in this article, the KK administration continues to institute punitive taxes to the small minority of employed folks. An estimated 16.7 million people are involved in gainful economic activities, but seem completely off the rudder of the taxman.
Recent taxes and levies, and other proposed new taxes in the 2024 Finance bill like the motor vehicle circulation levy, VAT on most financial services, educational materials and on ordinary bread is likely going to hit hard on this minority taxpayers. If the policy makers target to grow the revenue base, strategic policy intervention must prioritise shifting the economy from highly informal to more formal.
For instance, the Hustler fund promotes continued informalisation of the economy based on the borrowing limits alone. Compared to late President Kibaki’s Sh6 billion SME fund advanced through KCB, Equity and Family banks back in 2003, the two interventions are world’s apart in terms of their economic impacts.
As at the date of this article, data from the hustler fund indicates at least Sh52.9 billion has been disbursed to an estimated 23.3 million opted in customers. Their savings are estimated at Sh2.3 billion. The group disbursement are Sh179.3 million to an estimated 53,724 groups. Separate data indicates over Sh9.9 billion is in default.
The question then is: why do this rosy numbers not seem to be reflecting in the governments employment and tax revenue data? For heaven’s sake, sh.53 billion is not little cash when injected into circulation for a small economy like ours. As indicated right from the onset, Hustler fund remains good politics, but bad economics.
The third number for us here is on the overall nominal GDP. As per the economic report, the total GDP grew to Sh15.1 trillion. This growth brings some sort of relief towards the country’s debt burden. The public debt was estimated at Sh9.6 trillion, translating into a ratio of about 64 per cent of the GDP. If these numbers are to be believed, then the excuse of the KK administration of blaming debt service burden would be significantly diminished. Generally, while a debt to GDP ratio above 60 per cent is considered as a high, the figure does not look scary as it was months ago.
With the strengthening of the shilling against the dollar, this numbers must look better presently. However, scanning through the indicators for various sectors of the economy, we must not be quick to celebrate. The agricultural sector was the key driver of the GDP growth rate, contributing at least 21 per cent of the Gross Value Added (GVA). This growth was most attributed to good weather, that can be reversed anytime should the weather head south.
The manufacturing sector decelerated in the year under review to grow at two per cent compared to 2.6 per cent in 2022. Even then, most of the growth in manufacturing was due to agri-based processing like milk and non-alcoholic beverages. Curiously, manufacturing for sugar declined by 40.7 per cent in the year under review. Does this reflect the negative consequences of the ‘mambo matatu’ declaration towards one of the biggest sugar players? Where has this processing relocated to?
Nonfood based manufacturing like cement and steel are on the decline trend. This is collaborated by slowdown in private sector construction, with growth in the sub-sector only driven by government spending in public projects.
This data seems to collaborate what the Kenya Association of Manufacturers (KAM) has been lamenting on all along. Would the finance Committee of parliament listed to their pleas submitted to it against some of the injurious tax proposals that could dampen fortunes of the sector?
Finally, we focus on where the rubber meets the road for ordinary consumers. The 7.7 per cent inflation burden for 2023 was driven mainly by price increases of transport; food and non-alcoholic beverages; and housing, water, electricity, gas and other fuels. How more does raiding employee payslips further, and making ordinary bread VAT-able endanger the socio-economic welfare of Wanjiku? Only time will tell.
