BORROWING SPREE

More debts likely to slow economic recovery

In Summary
  •  Development economists will remind us that it takes much time for any economic market to adjust to monetary injections
  • If this is the road that Kenya is taking, then we might end up increasing our debt burden without actually cushioning citizens from the impact of the pandemic

On March 4, the CEO of IDB Capital Limited (formerly Industrial Development Bank of Kenya), Karen Kandie, wrote an article titled: ‘Kenya’s economic recovery vibrant despite headwinds.’ She strongly agreed with the World Bank’s forecast of Kenya’s economic growth.

Kandie supported her premise with Kenya’s increased private sector spending, favourable government policies and debt relief. Even though these measures could be very instrumental for the growth of a young economy, she forgot to factor in the effects of national debts.

The IMF has just approved a Sh255 billion loan to Kenya. The primary reason for acquiring this loan, according to the National Treasury CS, is to support the next phase of Covid -19 response. This is very fallacious. Here is why;

As a pre-borrowing measure, the IMF had Kenya reinstate effective tax rates on income and VAT in January. This ended most of the measures put in place by the government to cushion citizens.

Simple logic, how can you convince citizens that this loan is expected to benefit them when the lending institution advocates such actions? According to Keynesian economists, the best way to make an economy recover is by coming up with policies that will stimulate consumption and increase government expenditure.

It is now evident that Kenya is to adopt more of monetary economics even as it continues to battle the pandemic. Development economists will remind us that it takes much time for any economic market to adjust to monetary injections. If this is the road that Kenya is taking, then we might end up increasing our debt burden without actually cushioning citizens from the impact of the pandemic.

This will be tragic owing to the fact that it is these people who control a larger part of the consumption expenditure which is instrumental to economic growth. Treasury should therefore consider only loans that have sound conditions if it actually has to borrow.

Any loan that is geared towards indirectly increasing the burden on the middle and low classed should be avoided. Kenya should come up with alternative ways of bridging its debt-GDP ratio.

Economics student, UoN