There is a popular belief that the government is 'broke' but governments do not go broke.
Governments may delay payments, they may default on their debts but a government will never go bankrupt because it always has the option of printing money to pay its obligations.
However printing excess money leads to runaway inflation, as we saw in Kenya in the 1990s. Today most countries follow neo-liberal economic policies that emphasise monetary strictness. So inflation remains under control, even though Kenya is in a cash flow crisis, because government is not printing money to escape its indebtedness.
It is however about to borrow another Sh400 billion from the IMF and the World Bank. Yesterday Treasury CS Ukur Yatani said the IMF money would support parastatals hard-hit by the Covid pandemic (see P4/5).
Globally governments are borrowing at unprecedented levels because of Covid so Kenya is not so different.
But that borrowed money must be used wisely. It is proper to bail out Kenya Airways but it makes no sense to rescue companies like Portland Cement or Tarda.
Yatani must be ruthless in ensuring that these Covid loans are spent wisely and well.
Quote of the day: "You are afraid because you don’t know what you are capable of."
Hastings Banda
The first President of Malawi died on November 25, 1997
