Going into debt can actually be a good investment for the country. Essentially, as economists will tell you, the key question is: are you spending money on the right things?
Last week, American TV host John Oliver, in his show Last Week Tonight sought to address the issue of national debt with a statement he made that caught my attention. He said; “Going into debt can actually be a good investment for the country. Essentially, as economists will tell you, the key question is: are you spending money on the right things?”
Last week, it emerged that Kenyans borrow up to Sh1.2 billion a day using the Safaricom overdraft product Fuliza. Essentially this is the same amount of money that the government has been borrowing on average to keep the country going.
It was during the same week that more than 200,000 Kenyans signed an online petition requesting the IMF to cancel a loan to Kenya. In fact, what some did not understand is that the credit facility by the IMF is essentially not a loan unless we draw from it.
Loans and credits are different finance mechanisms. While a loan provides all the money requested in one go at the time it is issued, in the case of a credit, the lender provides the customer with an amount of money, which can be used as required, using the entire amount borrowed, part of it or none at all.
But away from the definitions, the question we must interrogate is not whether our nation should borrow and the veracity of what the loans will be used for. And this is something that we must also interrogate at an individual level – what are we fulizaing to do?
One thing that has been clear over the years is that no country can survive without development. It is only irresponsible governments that do not focus on projects that are aimed at making the lives of the citizens better.
When you look at Kenya for instance, there has been a need for better roads, better schools, better hospitals, better water and sewerage systems and many other things that affect the daily living of all Kenyans.
Since the government does not have its own money, it relies on revenues raised through taxes to finance these things. But since the needs are heavy, there is the risk of overtaxing the citizens, which would not be ideal in any measure.
This is what leads to the deficit in the national budget that would then have to be financed through borrowing. Essentially, this is why the government has to borrow to ensure that it does not overtax its citizens while ensuring that essential services are available to the public.
Over the last 20 years, Kenyans have seen the expansion of roads, healthcare, schools and electricity connection. With these expansions, especially in schools and hospitals, there has been a growing need of personnel.
With the tax base not expanding at the same pace as these needs, the government has been faced with a deficit each year. Kenya has therefore had two options—suspend development and end up with a very dissatisfied citizenry or take loans to help deal with the deficit.
What we need is an honest conversation on whether we are spending our revenues, both those collected through taxes and loans, in the right manner. Are we seeing benefits from government spending?
Like we have to be honest when we say, for instance, that the government is spending more money to pay foreign lenders than it is on other essential things. For instance in 2020, the government spent 5.3 per cent of GDP on education and 2.1 per cent of GDP on healthcare as compared to 2.7 per cent of GDP on external debt.
Therefore, from the above example, we cannot say the government is only paying debts. Revenues are going to matters that affect Kenyans.
Of course we cannot run away from the fact that there have been cases of misappropriation and misuse. But we have also seen people arraigned in court for this and the government has been working on austerity measures.
We should therefore avoid making arguments that seem to create conflict on the issue of national debt without looking at the benefits of borrowing.
