Link Between Public Debt and Sustainable Development in Kenya
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Date
2023
Authors
Nyaga, Isaac Ngonye
Journal Title
Journal ISSN
Volume Title
Publisher
Kenyatta University
Abstract
Since the start of the financial meltdown in the 1980s, scholars have questioned whether the influence of economic growth on financial development is a major issue. This discussion has been ongoing ever since. The quantity of government borrowing is one of the key macroeconomic aspects that contribute to a country's image in international markets. This is one of the criteria that is examined by overseas companies. Responsible management of the public debt contributes to increased economic development and stability by increasing the availability of resources at reduced borrowing costs and reducing the amount of exposure to financial risk. Since Kenya is still a developing nation, a significant portion of its GDP comes from exporting various primary products. To finance national growth plans, previous administrations have amassed enormous amounts of public debt to increase the number of domestic assets that are already accessible. A high level of debt in Kenya presents a significant obstacle for the economy because a significant portion of the country's revenues is used to service the debt rather than being invested in the domestic economy. As a result, the opportunities for economic expansion are diminished due to this situation. In the recent past, Kenya’s public debt has been growing at a steady rate for instance, cumulative external debt grew from KES 3,117 billion to KES 4,015 billion (28%) between February 2020 and June 2021. This has raised concerns from various stakeholders in Kenya’s ability to honor these debts. The concerns have also been compounded increase of the debt ceiling by parliament. There have also been cases where Kenya has defaulted servicing of some of these loans or requested the lenders for a moratorium. The study examines the relationship between public debt and sustainable development in Kenya by analyzing public debt vis a vis sustainable economic development indicators, test the hypotheses on the relationship between public debt and sustainable development, using the real GDP growth rate as a proxy for sustainable (economic)
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development. This included public debt (both foreign and domestic), whether public debt is bad for a Kenya and the overall effect of debt servicing on the economy. The targeted population was from the year 2000 to 2021 to analyze the trends with an aim of coming up with suggestions to policy makers using real data on how best the country can manage public debt to ensure sustainable development. The research relies on secondary data which is available on publicly accessible sources such as the national treasury, IMF, world bank etc. The researcher used STATA due its numerous time-series data analysis benefits. The research came to the conclusion that there is a significant connection between public debt and economic sustainability after finding that an F-test value of 64.86187 at a significance value of 7.58E-10 (p-value-0.05), indicating that the null hypothesis was rejected, and finding an F-test value of 64.86187 at a significance value of 7.58E-10. According to the findings of this research, a high level of public debt inhibits productivity expansion. As a result, the government should only resort to this method of financing economic growth as a last resort given that it contributes to the hollowing out impact problem that exists in the country.
Description
A Research Proposal Submitted to the School of Law, Arts and Social Sciences in Partial Fulfilment of the Requirements for the Award of the Degree of Master’s in Public Policy and Administration of Kenyatta University ,April 2023.
Keywords
Public Debt, Sustainable Development, Kenya