For several years, the national debt has continued to swell and the general feeling is that in future, we stand a chance to get to a debt crisis. Currently, the Kenyan debt stands at Ksh. 4.884 Trillion (USD, 49 Billion) which translates to 56.4% of the country’s gross domestic product (GDP). Ten years ago, the national debt was at 42.8% meaning that it has gone up by 13.6% in only the last ten years. The national debt is more than half the value of its economic output and this is alarming for both Kenyans and Kenyan Businesses.
Impacts on the Debt
- Crowding out of development.
When most of the government revenue goes to servicing existing debts, then development and social programmes will be stalled and then crowded out. In an even worse scenario, the country could be pushed to cede control of strategic national assets to creditors. A good example is the handing over Sri Lanka’s Port to service debt to China.
- Inflationary effect.
About 72% of the national debt is by China and the contracts always come with a condition that Chinese contractors are given the contracts to implement projects. This is alarming because we already import more products than we export bringing about even higher levels of inflation.
- Possible improvement of the economy.
National debt is not necessarily all bad. If the funds are utilized for proper development projects there will be positive improvements to the economy. Investing these funds in, for instance, improving public infrastructure would lower the cost of doing business and make the country a proper and attractive investment destination. Investments will boost the economic output and the ability to service the debt with would then lower the need for the debt or improve the credit rating of the country to make it safer to seek more debt in future.
- The possible high cost of borrowing.
If we take a loan to service another loan, that comes at risk for lending parties to have very high loan interests. There will be no wealth created meaning that lenders will see possible default on loans and increase the cost of borrowing.
- High cost on Kenyans and Kenyan Businesses.
Because of the high costs of loans, the likelihood of increased taxes is very likely. The government will offer no subsidies for businesses and the cost of doing business will be ultimately high. Similarly, a high cost of production and distribution will mean a high cost of items and by relation, a high cost of living.
The outcome of a 56.4% debt is not ultimately mean doom for the country. If the country is able to improve infrastructure and production capability there could be three possible positive way forward strategies:-
- Increase investment in human capital to encourage entrepreneurship, therefore, special focus on education and technical training.
- Evolution from the exportation of raw materials to value addition and manufacturing. This will lower inflation levels by ensuring that we are able to export more than import.
- Development of local enterprise, particularly, the ones that produce import substitutes like agriculture. Examples of such products are coffee, tea, sugar and rice.
Here are other ways we can continue to suffer under debt: Kenya Has Lost Ksh 700 Billion So Far Over Political Uncertainty.