Effect of Foreign Debt on Human Development in Kenya
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Date
2024-05
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Publisher
Kenyatta University
Abstract
Human development places emphasis on an individual’s wellbeing using the Human
Development Index indicators; education, health and income. Public debt is acquired to
enhance investments in areas that promote social welfare of an economy’s citizens. Foreign
debt is intended to bridge the gap between domestic savings and investments. The successful
utilization of these debts is measured by improved wellbeing of the citizens using human
development index. There has been a negative trend in human development indicators in
Kenya in the recent past at a time when external debt is rising. In the fiscal year 2021/2022
public debt as a percentage of gross domestic product was recorded at 67 percent which was
higher that the debt ceiling at 55 percent of gross domestic product. External debt accounted
for 52% of this total debt as at 2022 recording a continuous increase as from 2013, surpassing
domestic debt. As the public debt was bursting its ceiling, the human development indicators
were showing a declining trend, which begged the question on the effect of foreign debt on
human development. The study determined the effect of foreign debt on Human
Development Index proxies namely; literacy rate, health and poverty. The study used
secondary data published by various regional and international organizations from 1990 to
2021.The study was pegged on a consumer utility maximization of a merit good (education
and health) theoretical framework constrained by the government’s financing. The relevant
time series and diagnostic tests were performed on the data series and models.
Auto Regressive Distributed Lag model was used for estimation using ordinary least squares.
The findings were that, foreign debt had a negative effect on human development in Kenya in
the long run. However, in the short run, foreign debt had a positive influence on literacy rate
and led to a decline in morbidity. The study recommends prudent management of foreign
debt
Description
A Research Project Submitted to the Department of Applied Economics in the School of Business, Economics and Tourism in Partial Fulfillment of the Requirements for the Award of Master of Economics (International Trade and Finance) Degree of Kenyatta University, May 2024.
Supervisor
Stephen Githae Njaramba