An Investigation into the Discrepancy in Kenya’s Balance of Payments Statistics

By Sheila Kaminchia
May 2011

The balance of payments (BoP) is a statistical statement in which data on economic transactions between one economy and the rest of the world are recorded. Compiling the BoP entails recording two entries – one credit and the other debit – for every transaction considered so that the sum of all entries in the statement is zero. Due to challenges in collecting requisite data on all BoP transactions, a net errors and omissions term, which is the statistical discrepancy, is introduced in BoP statements to balance out entries and ensure a zero sum result for all transactions as recorded. This paper investigates the statistical discrepancy in BoP statistics for Kenya for the period 1975 to 2009 and aims to identify the BoP items that most explain the discrepancy. A combination of principal components and time series analysis is used in the investigation. The study finds the statistical discrepancy to be most explained by financial account items and finds scope to improve on Kenya’s BoP through better understanding of cross-border financial transactions, particularly payment arrangements that give rise to trade credits, and improving compatibility among the existing multiple sources of data.