When the Kenya National Bureau of Statistics released the new Gross Domestic Product Figures in September last year, Kenyans were happy after the country was pronounced a lower middle class economy.
According to the Wordbank, a lower middle income economy is one whereby the total value of all goods and services produced by a country in a year (divided by the country’s population), lies between $1,045 and $12,746.
It is now six months since Kenya attained this status and there are few days to the release of the Annual National Budget Estimates for the 2015/2016 Financial Year. We sample some of the implications of this new status, especially with the budgetary allocations coming out of the annual estimates.
After rebasing, which ranked Kenya as a low middle income economy, the country’s GDP per capita rose to $1,246 from $994. Rebasing refers to the exercise of updating the measures of a country’s economic growth over a given period of time. Such measures could be new sectors which have developed in comparison to the previous year of rebasing. This exercise helps track changes in the economy and it is done in different intervals in different countries. For example, the mobile telecommunications sector has grown very rapidly over the last decade so the measure or weight given to that sector in the previous estimation needs to be increased hence the rebasing exercise.
In most occasions, the budget estimates and the projected projects are funded with money borrowed from various donors and taxes from local businesses and individuals. But Geoffrey Injeni, a Financial Consultant says that there may be no much changes in the financing of the budget.
“Kenya still needs to raise more money to support economic growth especially develop its infrastructure. This will lead to a good business environment and promote economic activity. Donor funding is still required and more funding will largely come from borrowing especially from outside, though supported by some local borrowing,” he explains.
But beyond donor funding, the lecturer at Strathmore Business School says that the key source of financing the budget is cost cutting in the public sector especially by introducing efficiency in the way the government works and delivers services as well as reduce corruption.
“In addition the country ought to enter into Public Private Partnerships with local and foreign investors, get tourism back in track by preventing terrorism and after carefully consideration look into some donor funding in specific ares like health and education,” he added.
The Analysis of likely Implications on Rebasing the GDP of Kenya, a report released by the United Nations Development Programme (UNDP) last year states that despite cases of inequality and high levels of poverty, the rebasing of the country’s economy is likely to have major changes on the economy of Kenya.
The report states that by updating the base year to 2009, Kenya’s GDP statistics will better reflect the performance of the economy. However, this may disadvantage the country when it comes to accessing development funds. The report adds:
“A larger economy means Kenya needs less support and will not be eligible to access key export markets on preferential terms. Hence, Kenya might experience loss of access to key markets it currently trades in under special terms as a poor country.”
Contrary to the thoughts that after rebasing, Kenya will pay more for development loans, Injeni differs. He says:
“On the contrary it shows we require funding to move to the next level and funding will be geared towards development.”
According to him, the budgetary allocations will be largely done first on the basis of last year’s budget and secondly based on political dimension in order for the Jubilee government to achieve some important pledges it made to Kenyans and hopefully to support devolution.