Debt is loved and hated in equal measure. Biblically, you become a slave of the debtor.
But that has not stopped us from taking more debt. It is easy to get into debt; it feels like free money till you start paying back. A popular joke on the streets targeting car owners from matatu touts is: anajivuna na gari ni ya loan (you are showing off, yet you got the car on loan) shows our secret admiration for debt.
We love the improvements in our lives from debt but hate repayment. Corporates take debt and so do governments. Debt is a big business! Like oil, it keeps the economy running.
It raises the velocity of money circulation, leading to economic growth. That is why debt distress or failure to pay debt has such a devastating effect on the economy and our lives. It breaks down money circulation.
Debt's key attraction is "instantaneousness." Even without loan apps, getting a loan has never been that hard. Loans cater for different needs, including overnight lending by banks. Beyond instant money, this flexibility makes loans very attractive. You can negotiate rates, amounts and the repayment period.
For individuals, corporates and governments, debt allows the borrower to "bring forward" future consumption. For instance, you can live in a better house today instead of waiting for savings to build it when old.
Dowry negotiator
You can have good roads or hospitals today instead of 10 years down the line. You can have a wife today and pay your debt (dowry) later. Remember I am a certified dowry negotiator.
The alternative to debt is saving, which is hard. We rarely make enough money to save.
Debts connect those with excess savings with those without, through banks, shylocks, or loan apps. Through debt, you use other people's money to make more money. You could be a businessman, entrepreneur or even a broker.
Government debt is another game altogether. Our leaders incur debt on our behalf. The debt is supposed to be an investment into the productive capacity of the economy like roads, ports, schools, and other infrastructure.
That is why it was music to my ear when the president suggested that debt should not be used to pay recurrent expenditures - salaries, fuel, and entertainment. What if tax revenues are not enough? But often, our egos get us into debt. We incur debt to fulfil political promises or create legacies.
That is why concrete projects are more popular than "soft projects" such as health and education. In government debts, the borrower and the payer are often different, they could be different leaders, governments, or generations.
The Kenya Kwanza government cannot refuse to pay the debts incurred by past regimes. A bond maturing in 2040 could be paid by your grandchildren. One of our paradoxes is why the new government is borrowing despite opposing that in the run-up to the polls.
One reason for this is that debt is easy to get! Just some paperwork and the money lands in your account. You can buy a bond in a few minutes and lend the government money. Compare that with tax. It takes years to start enterprises that pay taxes. Increasing taxes on the existing firms and their employees could make some firms close; tax is an expense. That could depress the economy further.
The government and all its obligations cannot wait till we have enough firms or employers to pay taxes. Reducing waste would lead to retrenchment, unemployment, and political costs thereof. It is worse now because of the two levels of government, each with its cadre of employees. The voter is in a fix. Keeping off debt would mean more taxes or unemployment. Your guess is as good as mine on the position our leaders will take. Could this be why the National Treasury Cabinet Secretary always seems to be in distress in press photos?
Clearly, the government will not stop borrowing under the current circumstances. It is even using debt to pay the debt. It has come with a new debt ceiling defined as a percentage of gross domestic product (GDP) fixed at 55 per cent.
To increase debt, you must increase the GDP, that is grow the economy. We hope our leaders are bold enough and ensure the economy grows through good policies, incentives, and fear of losing in 2027. When the debt ceiling was an absolute number our political leaders kept raising it to Sh10 trillion.
Will they also raise the percentage once they find growing the economy is not easy? Why not use debt to increase the productive capacity of the economy and its ability to incur more debt?
It seems the government cannot wean itself off debt in the foreseeable future. The Debt to GDP ratio for a few developed countries like the US, Japan and the UK is higher than Kenya's.
