Delayed GDP numbers leave Treasury minister ‘flying blind’

Treasury Cabinet Secretary Ukur Yatani. PHOTO | SALATON NJAU | NMG

What you need to know:

  • The Economic Survey 2020 was expected in April but is yet to be released.

Treasury minister Ukur Yatani will this afternoon present his Sh3.6 trillion Budget for the next financial year starting July but with the oddity of missing gross domestic product (GDP) baseline figures for 2020, scenario analysts said puts the country at risk of overstated growth and revenue targets.

The publication of the country’s 2020 GDP report – which measures total production and acts as a scorecard for health of the economy, has been delayed. The Economic Survey 2020 was expected in April but is yet to be released.

GDP empowers policymakers and central banks to judge whether the economy is contracting or expanding and promptly take action upon evaluation of the impact of variables such as monetary and fiscal policy, economic shocks, and tax and spending plans.

Analysts have said the missing GDP data could lead to revision on the budget if the State overstates its revenue expectations.

“The growth outcome for 2020 should act as the baseline for the upcoming fiscal year. Without the data for 2020 they might be overestimating the growth for the current year,” Genghis Capital head of research Churchill Ogutu said.

The current budget is pegged on an expected rebound this year without a real GDP growth for 2020 despite the shocks that hit the economy last year especially in some sectors and employment rates.

The country recorded an expansion of 4.9 percent in the quarter to March before the country felt the brunt of the pandemic, but contracted by 5.7 percent in the quarter to April, before easing to a 1.1 percent slide in the quarter ended September 2020.

Declined incomes

The report for the third quarter was supposed to lag by one quarter to come in December but was only published in January this year.

The economy continued to face shocks over the year with cycles of easing the economy and the government’s re-imposition of the restrictive measures.

This has led to hold expansion plans and investment by firms, freeze of employment amid declined revenues and consumer spending. There has also been increasing inflation constraining household consumption coupled with declined incomes.

In the fiscal year 2021/22, the government has increased its tax revenue targets for the fiscal year by Sh181.6 billion to Sh1.78 trillion pegged on the rebound on the economy.

Even so, the latest quarterly labour force report showed statistics for up to September last year hence a gloomy prediction of the job market.

“With the country being a net importer, private consumption is the missing link. We are yet to know the number of those employed and those who lost jobs during the year which is a drag on how much people consumed and hence impacting GDP,” Mr Ogutu added.

National Treasury’s Quarterly Economic and Budget Review for the third quarter ending March 2021 showed government spending was Sh1.09 trillion against a target of Sh1.72 trillion out of which development expenditure amounted to Sh330.1 billion.

Tea earnings

Total exports were valued at Sh641.21 billion last year due to tea and fruit earnings but with a trade deficit of Sh1.001 trillion.

“Bottom line, in the absence of up-to-date headline 2020 growth performance and ultimately financial year 2021/22 macroeconomic projections that will be subject to revisions, this will lead rise to Supplementary adjustments,” Genghis Capital stated in their Budget Topical Note.

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