WED 22 SEPT, 2021-theGBJournal- Marking the culmination of work that started in 2017, the Kenya National Bureau of Statistics (KNBS) has revised and rebased the national accounts using 2016 as the base year (Previously: 2009). The current rebasing marks the seventh in the country’s history – 1957, 1967, 1976, 1986, 2005, 2014 and 2021.
The development is in line with the recommendation of the United Nations Statistical Commission, which requires the revision and rebasing of National Accounts every five years, with a base year not older than ten years. The revised nominal GDP of KSH10.75 trillion (or USD101.58 billion) in 2020FY maintains Kenya as the sixth-largest economy in Africa behind Morocco (USD112.22 billion).
The rebasing exercise had led the Kenyan economy to be larger than it was when the economic activities were still measured using the 2009 constant prices. Safe for the Agricultural sector, the nominal GDP for most sectors was revised higher. We understand that the downward revision for the Agricultural sector reflects changes in the price structure in the sector as consumption and production patterns have undergone significant changes over the period. The most significant upward revisions were seen in Transport & storage (+44.8% vs the previous estimate in 2019), Real estate (+40.2% vs the last estimate in 2019), and Public administration (+55.6% vs the last estimate in 2019).
Implications of the Rebasing Exercise for the Economy
The rebasing of a country’s National Accounts primarily results in improved accuracy, consistency, and reliability of the National Accounts estimates of a country over the medium term following the base year. Asides from the generic advantage, specific implications of the completed rebasing exercise on the Kenyan economy include the following:
Improved coverage of the informal sector: We understand that one major positive of the rebased GDP is that the detailed survey led to the enhanced coverage of the informal sector and better estimation of the underground economy.
For instance, the periods (2009 to 2015) before the base year (2016) had their total GDP estimates reviewed upwards by an average of 12.0% compared to an average upward revision of 5.6% between 2016 and 2019. This means that the significant revisions in the earlier years were occasioned by improved coverage of economic activities that were previously not adequately taken into account during the 2014 rebasing exercise.
Suppression of debt and fiscal indicators: Although impact could be negligible in some instances, we note that the rebased National Accounts would reduce macroeconomic indicators measures as a percentage of GDP. For example, the public debt to GDP ratio averaged 53.0% between 2013 and 2019. With the outcome of the rebasing exercise, the public debt to GDP ratio averaged 46.8% in the review period. However, Kenya’s tax revenue-to-GDP ratio has worsened to 12.9% (post-rebasing) from 13.8% in 2020FY (pre rebasing). This implies that the authorities would need to do more to broaden the tax base and close tax loopholes.
Changes in the economy’s structure: Following the adoption of the new system of National Accounts and revision of GDP, the share of Real estate, Transportation, and Trade increased to 9.24% (previously: 8.30%), 9.98% (previously: 6.89%) and 8.34% (previously: 7.63%), respectively. However, the share of Agriculture declined to 19.93% from 21.66%.
Positive Outlook but Revised on Rebased National Account
Prior to the release of the outcome of the rebasing exercise, the latest GDP data of Kenya stopped in Q3-20. However, the release of the revised and rebased GDP estimates provided the economy’s performance in 2020FY. Consequently, we highlight that the economy contracted by 0.32% y/y in 2020FY (2019FY: +4.98% y/y).
Overall, we revise our estimates and project the economy to grow by 4.91% y/y in 2021E (vs 2020FY: -0.32% y/y and 2019FY: +4.98% y/y), which is down 1.59ppts from our May’s forecast.-Analysis is provided by Cordros Research
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