Kenya’s growth estimates a mere hype

The invention of GDP has given rise to a class of technocrats and economists who implement policy for the good of the economy, but not always for the good of the rest of us.”

That quote from Financial Times Africa Editor David Pilling in his book The Growth Delusion: The Wealth and Well-Being of Nations explains the statistical acrobatics happening in Kenya.

Technocrats and economic analysts have deliberately chosen to ignore evidence-based diagnosis of the economy and have instead chosen to confine themselves to only running mathematical model that parachutes impressive economic growth figures when the reality reads differently.

Three weeks ago, I met a fellow economist to exchange notes on Kenya’s economic outlook. Unfortunately, our notes were referencing from different books, him and his team were confident our economic growth will hit six percent because when they look inflation numbers, real exchange rate numbers, exports and imports….Voila! you get a GDP growth of six percent.

This did not come as a surprise though. One of the big problems with macro-economics is that GDP measurement has become the Holy Grail and macro-economists have ended up captives of mathematical models leading them to drink the Kool-Aid of GDP input data and remain blind to the weight of the littered micro-economic evidence of a country’s economy’s performance.

For Kenya, one doesn’t even need an economics degree to know that the economy is a titanic on the ocean headed for the iceberg. You only need to read the business and economic coverage by the media.

To start with, it is now evident that Jubilee administration expansionary fiscal policy of economy-wide public spending to accelerate economic activity and growth has ended up benefiting a small slice of tenderprenuers.

A research by World Bank suggests that the amount government owes contractors is equivalent to about 1.6 per cent of GDP in the 2017/2018 fiscal year, an increase of 0.7 percent from the previous year.

Moving on to public debt, it gets muddy. The Kenya Revenue Authority (KRA) is already missing collection targets and in the coming fiscal year, the government might end up spending almost 70 percent of revenue collection in debt servicing.

Left with limited revenue to finance its obligations, the Treasury has opted to rack in loans borrowing Sh2 billion every day from the local market, crowding out private sector from the credit market.

Private credit growth is now growing at 3.4 percent, way below recommended threshold to power stable economic growth.

Pension funds guarantee by government on the other head is also ballooning and heading towards unsustainable levels.

Next is the agricultural sector which contributes around 30 percent to GDP. Many analysts predicted that this fiscal year will see a rebound of farming, informing the six percent GDP growth but are now surprised with the “worst drought in 38 years”.

Tea that earned Kenya Sh141 billion in forex has seen half of tea workers sent on leave due to prolonged drought. At the macro-analysis level, this means value of exports will be falling since our export basket is dominated by agricultural commodities.

In general, one only needs to speak to any trader whether it’s a hawkers, restaurateur, mama mbogas, jua kali artisan or real estate agent to feel the impulse of the economy.

It’s not in doubt that there is decreased economic activity.

It’s during this kind of situations that GDP as a standard measure of economic progress gets heavily critiqued, ever since it was devised by Simon Kuznet.

Looking at Kenya’s fiscal picture, may be its time for Parliament to rein in by imposing hard spending cuts on government to to tame irresponsible spending where the total government’s budget cost presented before it is pegged on GDP growth.