Kenya should borrow even more to fund its development projects

This image taken on November 26, 2017 shows a section of Outering Road at Donholm Flyover. The government has invested heavily in construction of roads. PHOTO | FRANCIS NDERITU | NATION MEDIA GROUP

What you need to know:

  • But again, borrowing blindly is catastrophic. We must check things such as the rate at which we borrow.
  • We should always invest borrowed money in capital expenditure, which has the capacity to stimulate economic growth.

Debate on the national debt has been raging.

The recent Eurobond roadshow that attracted over 700 per cent subscription only helped to fuel the discourse with many Kenyans complaining that we’re becoming a heavily indebted nation.

Tweeting recently during a television interview in which I was a guest, a viewer aptly put forward a paradox that, while the government was offering free maternity and basic education, a newborn comes laden with a debt bill of Sh100,000.

The reason most financial institutions prefer to lend women in groups is because of the dread and shame associated with being auctioned after defaulting on payments.

LOAN

While I don’t approve of loans (I’ve never taken a commercial loan — save for the Higher Education Loans Board one), the matter at hand has to be argued objectively, free from the weight and adornment of personal inclination and subjective beliefs.

The question most people are asking is whether Kenya is really being prudent by getting deeper and deeper into debt.

The invention of the Eurobond and the subsequent appetite for debt has elicited worries.

On September 2005, I joined Kenyatta University to study economics, admitted as a Joint Admissions Board student — meaning the government shouldered most of my education burden.

Helb represents one face of debt. Used well and as an investment, it invariably brings good tidings.

PUBLIC DEBT

From the proceeds of an education funded through a loan, I have repaid the debt and enjoying the fruits of debt.

The debate should dwell more on why we borrow than whether we should or should not.

Kenya’s public debt as a percentage of GPD is 55 per cent, way below that of many developed countries.

In fact, we are 62nd. Japan’s is the highest at 250.40 per cent with the United States and the United Kingdom at 105.40 per cent and 89.30 per cent, respectively.

But there is yet another worry: That, with a public debt of Sh4.5 trillion, every Kenyan, including a newborn, is saddled with a Sh100,000 debt.

INFRASTRUCTURE

This is no small figure by any standard. But with a $18.15 trillion (Sh1.815 quadrillion) national debt, every American, including newborns and those struggling to become citizens, carries a debt of Sh6 million.

Japanese have a per capita debt of approximately Sh9 million!

These figures are not supposed to encourage us to borrow more. They should however make us to look for the reasons debt seems to work for some countries.

The JKIA-Rironi highway, which will pass through James Gichuru Road, was to be built in 2012 at a cost of Sh25 billion.

That rose to Sh38 billion in 2016. It is now being built at Sh59 billion.

Suppose we borrowed the Sh25 billion in 2012 and built the road immediately. Even if we had borrowed from a Shylock, it would saved the country a lot of money.

PRUDENCE

But again, borrowing blindly is catastrophic. We must check things such as the rate at which we borrow, terms of the loans, how we spend the money and the ability of our economy to bear enough fruits on investments from the cash.

Interestingly, the Japanese 10-year bond has a yield of 0.0460 per cent; Kenya’s 13.15 is per cent.

While our Central Bank Lending Rate is 10 per cent, US and Japanese ones stand at 1.50 per cent and -0.10 per cent, respectively.

In other words, money is, comparatively, really cheap in the two countries.

We also spend more on imports than we get from exports and therefore our economy is much weaker.

GROWTH

We should always invest borrowed money in capital expenditure, which has the capacity to stimulate economic growth.

The catalyst should excite the economy enough to create more wealth.

If we aspire to grow to a level of paying our citizens bonuses like Singapore, the mediocrity of having a bloated government must be tamed. We must also protect public coffers from predators and thieves.

Mr Nyoro, the Kiharu MP, is an economist. [email protected].