Reported By Arch Dr. Isaac Kinungi
Politicians, and even villagers are grumbling that our Country Kenya, is heavily burdened with debts, and yet many of them have never even sat in an economics class to be considered as experts having any authority to arrive at that generalized conclusion.
Kenya has qualified economic advisers who study the required developments or purpose for funds and after the physical planners have concluded viability in case of capital projects, they write a report to facilitate funding.
They do it after studying the current debts and the Government ability to accommodate any new debt that will not affect and much strain the borrowing factors that guide lenders.
The same has to be within the world-bank scores guidelines and once they are sure that the debt will not raise a red flag they go ahead and make commitments.
After the Diaspora National Assembly (DNA) deliberated on the economic situation in Kenya, and explored the huge future potential, there was a general consensus that the Kenyan Government can still continue borrowing to develop the Country.
The current GDP to debt ratio stands at 64.5% according to world bank figures and that in itself in a country with great prospects in Agriculture, tourism, and the recent oil exploration in Rift valley, is not worrying as we need to improve on the road network, housing, and other infrastructures.
Kenya’s Government debt accounted for 65.1 % of the country’s Nominal GDP by June 2020, compared with the debt GDP ratio of 60.3 % in the previous year.
This puts Kenya, not so far off compared to other African countries with even higher percentage of Debt to GDP ratios.
The lenders have basis of lending as they calculate risk factors and ability to repay and going by that, Kenya has no red flags as it’s still within borrowing limits and even appearing more favorable compared to other neighboring African countries.
The Central Bank of Kenya provides Government Debt in local currency. The Kenya National Bureau of Statistics provides Nominal GDP in local currency. Government Debt covers Central Government only. Kenya’s National Government Debt reached 60.6 USD bn in Mar 2020. The country’s Nominal GDP reached 27.2 USD bn in Mar 2020.
If you look at our debt ratios index and compare them to other countries, it is evident that our external debt is within a sustainable level and that public debt as a proportion of GDP still is not excess.
The lenders have basis on lending and they calculate risk factors and going by that Kenya has no red flags as its still within borrowing limits and even favorable compared to neighboring countries.
The Kenya Government, signed a 16.2 billion loan from World bank and immediately after the same was done, the social medial was overflowing with comments to the effect that the President has gone full swing to mortgage the country but it’s to the contrary.
The President will not stop as he is guided by economic advisors but not village economists and that was why he also proceeded to France this month to sign yet another loan for the continuous development of Kenya. Those are huge commitments that cannot be compared with the wheelbarrow initiatives that are giving his deputy sleepless nights.
They are required to cope with the economic crises brought about by the CIVID-19 closure as most sectors are affected but the same cannot halt the developments in line with the five pillars agendas.
There is no country that will survive without debts and if it did, all it means is that there will be no developments that will go on and the final outcome is that the country will not be able to attract more foreign investors.
Countries like Japan have gone over 200% government dept in comparison with their GDP and still, they continue developing and borrowing even more. In 2019 Japan recorded a government debt equivalent to 236.60% of the country’s Gross Domestic Product in 2019.
America which is a super power as of May 1, 2020 had federal debt held by the public rising to $19.05 trillion and intragovernmental holdings were $5.9 trillion, for a total national debt of $24.95 trillion. At the end of 2019, debt held by the public was approximately 79.2% of GDP, and approximately 37% of the debt held by the public was owned by foreigners.
Rwanda our next door neighbour, is expected to reach Government Debt to GDP as high as 65% by the end of 2020, according to Trading Economics global macro models and analysts expectations.
Government Debt to GDP in Uganda, is expected to reach 55% by the end of 2020, according to Trading Economics global macro models and analysts expectations datas.
We can go on and on and in the end, can comfortably conclude that a country has to continue borrowing in order to develop and as long as the money is spent as per the targeted purpose, we can continue developing to make our country even more attractive to foreign investors.
We only have to ensure that the money borrowed, is not diverted to other purpose but to go towards earmarked specific capital projects and further, the same, should not be spent in servicing existing debts, or to sustain recurrent expenditure as that is financially unsound.
Every borrowed funds, should be put to productive use like improving public infrastructure that can lower the cost of doing business and make a country an eye-catching investment both to the locals entrepreneurs and foreigners. This in turn would bolster economic output, and thereafter, the ability to service the debt will be done at ease and, in the long run, lessen the need for additional debt.
The overall effect, will immensely improve the country’s credit rating, which in turn would make the world bank, and other lender institutions, to gain confidence in a country and offer more funds, that will greatly help the country to develop even further.
If a country uses the money it has borrowed to repay another debt, that means that there will be no new creation of wealth, and a country struggles to repay debt then and in future. Once lenders detect that, they lower the credit rating and they will immediately start demanding a higher interest rate to compensate and cater for the risk expected. This will make the countries not to be trusted in further debts, and investors, will not even be interested in dealing with such countries.
It is therefore extremely important to fully utilize all the borrowed funds in the area they are intended for and if the same is done, it will not matter, even if we push the debt ratio to GDP to even more than 100 percent.
This is our defining moment and now that the Government has assured all that its committed to fighting corruption, let them put the borrowed funds to the intended purpose, and all will not make noise if we go for more loans in future to continue developing the country.