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MUGA: Nobody really understands debt

The more I studied this issue of national debt, the more the waters seemed to get murkier.

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by The Star

Columnists17 July 2024 - 09:30
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In Summary


  • My only conclusion thereafter was this: it's complicated.
  • Economic austerity measures, the very thing now being imposed on us, “only made things worse (in the US) — and predictably so”.

The issues fuelling the youth-led demonstrations that have shaken the Kenyan political establishment boil down to just two things.

First, the decline in economic opportunity within Kenya leading to apocalyptic levels of youth unemployment.

And second, the widespread perception that the country is currently weighed down by our “unsustainable” national debt, which is being tackled through a raft of unpopular new taxes.

The Finance Bill, 2024 was really just the trigger, rather than a fundamental cause.

I propose to tackle these two issues in my next two columns.

This week, I would like to address the issue of our national debt. For the Finance Bill, 2024 reportedly dictated to us by the International Monetary Fund, was a direct consequence of Kenya being heavily indebted and therefore having no choice but to appeal to the IMF for emergency rescue funds.

I first got interested in this question of our national debt about 20 years ago, when the IMF and the World Bank had a programme called the Highly Indebted Poor Countries Initiative. By then the programme had already been running for some years, having been launched in 1996.

Its primary goal was supposedly, “to ensure that no poor country faced an unmanageable debt burden” and the mechanisms it used to achieve this was that some debts were written off altogether; and then other debts were refinanced at lower interest rates.

Here then is the odd thing in all this: Kenya was judged to be neither poor enough nor indebted enough to qualify for this advantageous scheme. In the words of one online source, “Kenya did not participate in the HIPC initiative. According to the IMF, Kenya’s debt levels were considered sustainable”.


Thereafter a group of Kenyan NGOs paid for space in the local mainstream media to demand that Kenya should immediately be included on the list of the HIPC beneficiaries. And to support their point, listed how many valuable “development projects” could be supported by the funds that would be available if Kenya received a substantial debt write-off under this scheme.

Normally, the Kenyan NGO elites would not want their country to be judged as poor and highly indebted. But in this case, and with clear benefits to be obtained (not to mention that virtually all our neighbours – Uganda, Tanzania, Rwanda, Ethiopia, Sudan, Somalia and Burundi – qualified for support under this initiative) such elites were furious that we had been left out.

But in time, the more I studied this issue of national debt, the more the waters seemed to get murkier, and the issue more difficult to understand.

And, in my case, I was lucky enough to also have the opportunity to attend many lectures and seminars on this subject as a visiting research scholar at two top US universities, roughly 17 years ago.

My only conclusion thereafter was this: it's complicated.

But still, in trying to understand debt, let us take for example, the prolific New York Times columnist Prof Paul Krugman, who is also a Nobel Prizewinning economist.

In one of his more controversial Op-Ed columns, published back in 2015, titled, 'Nobody understands debt', he wrote as follows:

“… policymakers have been basing their actions on a false view of what debt is all about, and their attempts to reduce the problem have actually made it worse…austerity has…only made things worse — and predictably so, because demands that everyone tighten their belts were based on a misunderstanding of the role debt plays in the economy.”

He was writing about the US economy, and the US economic policy establishment, which apparently prescribed for the US much the same medicine as the IMF prescribed for Kenya, and which formed the basis of the key provisions of the unpopular Finance Bill.

The key point to note here is that economic austerity measures, the very thing now being imposed on us, “only made things worse — and predictably so”.

Well, if the US with its immense resources of both financial and intellectual capital could get it so wrong on what was to be done about their national debt, what chance had Kenya whose policies were being dictated by armchair theorists in air-conditioned offices in Washington DC?

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