Hits and misses in the Economic survey 2018
By Otieno Odhiambo | Published Tue, May 1st 2018 at 10:10, Updated May 1st 2018 at 10:18 GMT +3 SHARE THIS ARTICLE Share on Facebook Share on Twitter The recent Economic
Survey 2018 by Kenya National Bureau of Statistics shows an economy that is struggling. We are weak in our agricultural sector and in manufacturing. We are importing more than we are exporting. The worry is that we are buying clothes from Asia and a lot of undocumented imports of clothing could be coming in through Uganda.
Last year, we imported more than we exported, leading to a trade deficit. We are weak on interest rate management largely due to the capping of interest rates. A decline in an interest rate on deposits within the financial sector can dent savings and capital formation.
We did not manage inflation well as it climbed from 6.3 per cent in 2016 to eight in 2017. The global increase was from 2.8 per cent in 2016 to 3.1 per cent in 2017. Inflation destroys wealth and compromises citizens’ purchasing power and quality of life. There was a decline in overall economic performance.
The economy expanded by about 4.9 per cent last year compared to 5.9 per cent in the previous year - a decline of about one per cent. Though these rates are historical, they act as accountability indicators. It would be better if Chief Secretaries of agriculture and manufacturing make public what they intend to do so that we can evaluate them.
The two sectors are key and are like twins. The shilling also lost to major currencies - the euro and US dollar. This means we paid more for imports. The demand for foreign currencies tends to be higher in an election year. The real worry is the lack of growth extended to financial services.
The way new jobs created are reported in the survey also appears less informative. The report does not include the number of those unemployed. The survey says the number of new jobs created in the formal sector was 897,800, which is 110,000 more than in 2016. In terms of self-employment, we did not do well as the number of self-employed marginally increased from 132,000 persons in 2016 to 139,400 in 2017. Given the high dependency ratio, employment income impact directly on the quality of our lives. It is surprising why the survey is shy reporting the level of unemployment.
The key worry from the survey is the increasing government expenditure yet private investment is declining. The government’s huge expenditure adversely pushes out the private sectors from financial markets by making credit more expensive, yet private sector can create more jobs than the government.
Investing in government bonds is risk-free thus when the government offers attractive interest rate, then investors would rather invest in “National government Budget for 2017/18 is expected to increase by 21.7 per cent to Sh2,78 trillion from Sh2.28 trillion in 2016/2017” an increase of nearly Sh500 billion.
More disturbing is that only 24.14 per cent of the national government outlay is budgeted for development expenditure. Growth-sensitive economies spend more on development expenditure than on recurrent expenditure. What is worth noting is that public debt as at the end of June 2017 rose to Sh3.971 trillion and that 57.8 per cent of this debt is external. We will spend Sh623.1 billion on servicing public debt in 2017/18.
However, the amount budgeted for development expenditure is Sh670.6 billion while the amount needed to service public debt in Sh623.1 billion, in essence, debt has become a project. We will need lots of local currency and foreign currency to service these loans. Our imports grew by 20.5 per cent to Sh1.72 trillion, with those from Asia accounting for 64.2 per cent of total imports. We are trading at a disadvantage – “the ratio of exports to imports deteriorated from 40.4 per cent in 2016 to 34.4 per cent in 2017.”
There was a significant decline in maize production by 2.4 million bags and sugar cane by 2.4 million tonnes. This should worry any government. Wheat production declined by 49.5 (23.1 per cent). Even the quantity of milk marketed declined.
There is not much to report about the manufacturing and energy sectors, with major blackouts in most parts of the country, coupled with questionable bills to customers. The way forward? We must identify and tackle the obstacles to economic growth such as foreign domination, misuse of resource, lack of capacity to save and demonstration effect. The governments both at the national and county levels should nurture a competitive environment that encourages capital formation. -
The writer teaches at the University of Nairobi
Hits and misses in the Economic survey 2018