Turf wars that delayed economic data report

L-R, Tobias Rasmussen - IMF representative African department, CAS Treasury Eric Simiyu Wafuko, CS Ukur Yatani,  and PS Saitoti Torome. [Wilberforce Okwiri, Standard]

Before the Kenya National Bureau of Statistics (KNBS) moved to Nairobi’s Upper Hill, their offices were on a forlorn single-storey building along Lt Tumbo Avenue that looks like a high school’s administration block.

Herufi House - for long Kenya’s data-crunching epicentre - is squeezed and dwarfed by the towering edifices of the Treasury Building on one side and the Central Bank of Kenya (CBK) headquarters on the other.

Overlooking the building across the road is the sky-kissing Times Tower, the abode of the National Treasury’s blue-eyed boy - the Kenya Revenue Authority (KRA).

If buildings were trees and Nairobi’s city centre a forest, Herufi House would have died for lack of sunlight.

This is due to a dark canopy that the three buildings cast ominously over Herufi House, leaving very little space for life-giving rays of the sun to streak through.

Similarly, the occupants of Herufi House can’t breathe; they seem to endure pangs of bullying from their sister State agencies - KRA and CBK - under the watchful eye of their parent ministry, the National Treasury.

The persecution, it appears, has been aggravated by the debilitating effects of the Covid-19 pandemic.

The release of a damning report on jobs by KNBS that showed that up to 1.7 million Kenyans lost their livelihoods between April and June last year only made things worse for the State statistician.

In what appears like a coup against KNBS, the release of the Economic Survey 2021, for long championed by Herufi House, was taken over by her parent ministry.

The terse invite sent to journalists indicated that the survey would be released at the Treasury Building and not at the Kenyatta International Convention Centre (KICC) as has been the tradition.

Moreover, the highlights of the survey, which in the last five years have been read by the KNBS Director-General, were going to be read by Treasury Cabinet Secretary Ukur Yatani.

Earlier, there had been no convincing explanation as to why the survey had been delayed.

KNBS only gave a cursory explanation that due to the challenges of the Covid-19 pandemic, they had problems receiving feedback from some of the respondents.

But soon, the public would learn that the five-month delay in the release of the Economic Survey 2021, was due to a disagreement between the national statistician and the two economic policymakers, highlighting a tenuous relationship between the State agencies.

The new KNBS Director-General Macdonald Obudho while appearing before the Public Investment Committee (PIC) said the survey had been ready as early as March.

KNBS Director-General Macdonald Obudho. [Stafford Ondego, Standard]

However, Mr Obudho told the committee chaired Mvita MP Abdulswamad Nassir that when they shared their findings with “stakeholders,” “it appeared that there were some errors that were not taken care of and they had to be corrected”

“Because of what happened in March, we were told to relook into our work by the Central Bank of Kenya, the Kenya Revenue Authority, and the Kenya Institute for Public Policy Research and Analysis (KIPPRA),” Obudho told the watchdog committee.

But the errors, it turned out, might as well have been different people using different lenses.

While the policymakers were keen to have a positive spin, KNBS wanted to stick to its role of collecting, analysing and disseminating data.

CBK and National Treasury, a source from KNBS told Financial Standard, had been sweating over the dismal numbers.

The source, who refused to be named for fear of reprisal, said the problem with CBK and the National Treasury, is that they refused to move away from the models which they use to simulate the performance of the economy.

These models, said the source, need to be changed whenever new information from KNBS is availed.

“But they do not want to adjust their models. Even the World Bank and IMF (International Monetary Fund) change their models whenever they get new data,” explained the source.

In July, during the post-Monetary Policy Committee (MPC) press briefing, CBK Governor Patrick Njoroge faulted KNBS for giving “half-baked data.”

Taking journalists through what he reckoned were bright spots of economic recovery, Dr Njoroge insisted that GDP had started a steady climb out of a downturn, with various leading economic indicators sending positive signals about a bullish business environment.

He specifically cited ICT, which he described as the “tailwind” during the pandemic as it helped a lot of economic activities to stay afloat.

“And this is why we have been a bit curious when we have seen indicators that, let’s say, KNBS has put out which are kind of flattish,” said the CBK boss, noting that they started seeing this trend as early as six months before.

“So we queried those things, and we are supporting them in terms of providing the information they need to complete and give us some good indicators.”

CBK Governor Patrick Njoroge. [David Gichuru, Standard]

The KBS source insisted that CBK is of no help to them as the statistician is the one mandated by law to collect, compile, analyse and disseminate official data. Earlier in April this year, Njoroge and Yatani had told IMF that the high unemployment numbers and the downturn in manufacturing had been exaggerated.

According to them, employers and manufacturers might have taken advantage of the Covid-19 pandemic to exaggerate the negative impact of the crisis.

“They (Kenyan authorities) pointed to the high level of uncertainty and difficulties in capturing recent developments in economic statistics as traditionally compiled, noting that reported downturns in manufacturing and employment may have been overstated,” said IMF in a detailed report on the Sh256 billion credit facility to Kenya.

As a result, the two officials said they were more confident about the country’s growth outlook than the IMF staff.

While the IMF estimated that the economy had contracted last year, the government officials said they “expected growth in 2020 to be about 0.6–0.8 per cent, supported by the agricultural and construction sectors and a strong rebound in trade and transportation.”

Even before these remarks, Njoroge had already flagged what he reckoned was KNBS’ use of “wrong economic data” across several sectors.

This, he noted, had led to a distorted view of the country’s recovery from the Covid-19 pandemic. Critics also blame the clash of egos of economists at CBK and the National Treasury.

Rather than making sense of the data they are provided by statisticians, economists at CBK and National Treasury would also like to believe that they can do a better job of collecting data, a function that has been reserved by law to KNBS.

Crunching numbers - real numbers from real people - as KNBS has been doing, can be an unrewarding affair.

Those without jobs, or have jobs themselves but know of one or two friends without a livelihood, for example, are quick to dismiss the figures.

It can be more flattering when the national statistician, using the strict definition of unemployment (a person is unemployed only if they have taken active steps to look for work or to start some form of self-employment in the four weeks prior to the interview), puts the country’s jobless rate at around 7.2 per cent.

Or when KNBS gives the average price of a product that is at variance with the price near you when computing the cost of living index, also known as the Consumer Price Index (CPI).

From employment to population, the cost of living to economic growth, many Kenyans believe the numbers coming from Herufi House were always padded to drive a certain narrative.

CBK and the National Treasury have not always sided with the public, but this time they joined the lynch mob.

Treasury CS Ukur Yatani. [Wilberforce Okwiri, Standard]

The difference, however, is that while the public thought the unemployment numbers being churned out had been understated, the two State bodies insisted they had been overstated.

This is why KNBS delayed the release of the Economic Survey 2021 by over five months.

The report was released last week, showing that the size of the economy, adjusted for inflation of prices and services, shrank by 0.3 per cent last year.

Other than addressing the “errors,” KNBS also went back and relooked at the structure of the economy, which showed that the size of the national cake in monetary terms, or nominal Gross Domestic Product (GDP), had swelled by Sh515 billion.

“We didn’t want to present data that people were going to cast doubt on… now it is foolproof,” said CS Yatani.

Critics have noted that the decision by KNBS to rebase the economy was a scheme by the government to create wiggle room for the National Treasury to borrow more.

“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 boss, 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.

Before rebasing, the percentage of debt to GDP was estimated at 74 per cent. But this has since gone down to below 70 per cent after rebasing.

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.

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 the current high level to targeted levels,” said IMF.

Kwame Owino, the chief executive of the Institute of Economic Affairs, a public policy think-tank, however, does not reckon the rebasing gives Treasury more room to borrow.

“We don’t see any evidence of the rebasing and its timing being to doctor the country’s economic data,” said Mr Owino during a talk show on KTN last week.