DEBT

Foreign loans good for economic growth

No government can merely wish development into existence.

In Summary

• Each project has been carefully financed to ensure that its cost will be worth the investment.

• Uhuru's government is well within its rights to seek foreign loans to boost the economy.

President Uhuru Kenyatta.
President Uhuru Kenyatta.

Where would we be without the ability to acquire loans? How many fewer people would be able to own a home, start a business or even further their education?

When we need something that we cannot afford, getting a loan is usually the only option. Obviously, the loan is meant to achieve something that will make it easier to pay it back in future.

Research shows that owning a home leads to greater personal security, confidence and success. Attending university is an important investment, as is starting a business.

 

The same can be said of nations.

In Kenya, there has been a huge debate about its foreign loans. Part of Uhuru’s aggressive development and infrastructure plans of the last few years, have been financed with foreign loans.

These impressive developments cost money. No government can merely wish them into existence. Each project has been carefully financed to ensure that its cost will be worth the investment.

Kenya’s foreign exchange is relatively healthy. Only a few days ago, official data from Central Bank of Kenya demonstrates that foreign exchange reserves have risen to a five-month high after sharp gain of Sh24.5 billion ($244 million) last week.

Those who disparage foreign loans for some of these projects rarely, if ever, provide an alternative course of action. They pocket the gains of the infrastructure progress and want to leave the bill unattended.

Of course, there is a debate to be had, but it needs to be accurate and reflective of the reality as it is, and not as someone would have it.

One key measure of a nations’ foreign debt burden is the amount of foreign exchange (Forex) reserves relative to outstanding foreign debt.

Forex reserves consist of foreign currencies held by a central monetary authority. They include banknotes, bank deposits, bonds, Treasury bill and other government securities denominated in other currencies.

 

Kenya’s foreign exchange is relatively healthy. Only a few days ago, official data from Central Bank of Kenya demonstrates that foreign exchange reserves have risen to a five-month high after sharp gain of Sh24.5 billion ($244 million) last week.

Official data from CBK shows that the reserves now stand at Sh841.7 billion ($8.392 billion), equivalent to 5.45 months of import cover.

This has happened because of the strong shilling, which has strengthened because of factors such as consumer price index, balance of payments and money supply in the economy.

In addition, the CBK said that the Kenyan currency has been shored up by influences such as increased inflows of foreign currencies through export earnings, tourist receipts and diaspora remittances.

These are all important fundamentals of any healthy economy, and it is on the back of such factors that the government will secure loans for greater growth.

According to the Economist Intelligence Unit (EIU), a respected forecast and advisory agency, Kenya’s economic growth is likely to increase to an average of six per cent throughout 2020 to 2023. The agency says that it provides this forecast in part because it does not see any shortages in the nation’s Forex.

This means that Uhuru's government is well within its rights to seek foreign loans to boost the economy, quite simply because this policy is already a part of increasing growth. 

Under Uhuru the nation is growing and progressing. Obviously populist slogans about foreign loans will always exist, especially when they are coupled with stories of dire consequences.

We have been hearing these stories for many years and they have proven to be fairytales.

What is not a fable is the current growth we are experiencing and the relentless pace of an infrastructure revolution taking place in Kenya under Uhuru.

Many predicted that these policies will lead us to ruin, but they have proven to be wrong time and again.

Those who think a nation can be developed without investment have an obligation to explain to the people how.

Meanwhile, Uhuru will continue securing foreign investment and continued growth. The double whammy which is ensuring a brighter future for all Kenyans.