Kenya is one of the most indebted countries in sub-Saharan Africa. Our insatiable appetite for loans has seen our current public debt shoot to over 60% of Gross Domestic Product – GDP.
This insatiable need to borrow money is not lost to observers as President William Ruto visited China to not only woo Chinese investors to Kenya, but also to look for additional money through public private partnerships.
Against this backdrop, Kenyans are asking a number of recurring questions- Does Kenya have the ability to repay its loans? Is this the optimal development model, and how sustainable is it?
Before we attempt to answer these questions – if they can be answered – let’s take a step back and understand why Kenya cannot do without loans.
Need to Borrow
A key reason – Kenya is a developing country with a large infrastructure gap. The country needs to invest in roads, railways, ports, and other infrastructure projects in order to boost economic growth and create jobs.
Because the government does not have the resources to finance these projects on its own, we must look to loans to bridge our development gap.
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As it were, Kenya perennially suffers from a large budget deficit. In other words – we spend more than we collect in taxes. Part of the reason? A large population of young people are unemployed.
So – Kenya is forced to finance its budget deficit through loans.
In addition, Kenya is vulnerable to external shocks, such as droughts, floods, and commodity price fluctuations. These shocks can have a devastating impact on the economy and the livelihoods of Kenyans.
Loans help the government to respond to these shocks and to provide a safety net for the poor and vulnerable.
Risks associated with loans
If Kenya is unable to repay its loans, it could face default and be cut off from international capital markets.
Look at the current struggle Ghana is going through. In 2022 Ghana entered in a full macroeconomic crisis. This was due to pre-existing imbalances and external shocks
This would have a serious impact on the economy and could lead to a recession.
However, the Kenyan government has taken steps to reduce the risks associated with borrowing. For example, it has implemented a debt management strategy that aims to keep the debt-to-GDP ratio sustainable. The government has also improved its transparency and accountability in the borrowing process.
Overall, Kenya’s appetite for loans is understandable. The country needs to borrow money to finance its development and to protect itself from external shocks. However, the government needs to be careful to manage its debt responsibly and to avoid default.
Also Read: Ruto Begs World Bank and IMF for More Loans to Pay Eurobond
Here are some specific examples of how Kenya has used loans to finance development projects:
- The construction of the Standard Gauge Railway has reduced the time it takes to travel between Nairobi and Mombasa by half.
- The expansion of the Lamu Port, which is expected to become a major hub for trade in East Africa.
- The development of geothermal power plants, which have helped to reduce Kenya’s reliance on fossil fuels.
- The investment in education and healthcare, which has helped to improve the lives of millions of Kenyans.
While there are some risks associated with borrowing, the benefits of loans for Kenya’s development are clear. The government needs to continue to manage its debt responsibly, but it should not be afraid to borrow money to invest in the future of the country.
