Should the country borrow more money?

The country is going through a rough patch and the economy is heaving with perspiration and almost getting to boiling point. Businesses, both big and small, are clearly experiencing a sense of desperation with some resorting to desperate measures of reductions, layoffs, cutoffs and even shut-downs.

Unfortunately, governments, especially self-respecting ones like the Kenyan government, do not enjoy the luxury of resorting to such measures that are enjoyed by private organisations and corporations.

Kenya was removed from the list of so-called highly-indebted poor countries (HIPC) only three years ago. Additionally, nobody over the age of 18 in Kenya and actually the world over does not by now know that the country has been experiencing a tumultuous campaign period of a nature and magnitude never again known in its history.

This coupled with the knowledge that Kenyans have long acclaimed themselves as exhibiting ‘peculiar’ traits that are intractably politicised and ubiquitous leaves one with a big question: who should keep the engine running??

The elections are over... finito! and nobody, not one sane Kenyan would want us to get back to where we’ve been saved by sheer God’s grace and prayers.

Industry, investors and well-wishers have all been holding a wait and see. What is nextl?

Role of Government

The world over, governments are formed to exercise authority over the actions of people who live together in a society and to provide essential goods and services. These, however, must be financed through a symbiotic relationship requiring people and organizations to pay taxes to authorities.

How government mobilizes enough resources to meet its ever-rising expenditure needs is the docket of public finance currently steered by the Cabinet secretary in charge of National Treasury. It is here where we should level our big question as to whether we are in order as a country to escalate our public debt currently above the critical levels of 50 per cent of our GDP. This is a question against the backdrop of revelations that Mr Henry Rotich, who is in charge of Treasury, has already proposed to issue a fresh Eurobond whose proceeds will go towards deficit financing of both current shortfalls and short term gaps.

As a student of finance, I would want to refresh your mind with what past governments have resorted to when they found their economies in this kind of stagnation and at times depression. Quickly coming to mind is the initiative that came to be known as Kazi Kwa Vijana (KKV) which was rolled out in every constituency ostensibly to create jobs to our young people and give them reason to work wherever they were. Never mind how successful or infamous the initiative turned out. Quick on the heels of KKV was the other innovative program that went by the name Economic Stimulus Program (ESP), again rolled out in every constituency.

The other more recent, very well-intentioned programme is indeed the National Youth Service (NYS) agenda which is still under implementation.

The mandate of the docket of public finance has been changing and continues to change with time in tandem with the changing economic circumstances.

During the great depression that gripped the western industrialized countries in the early thirties public borrowing was highly recommended mainly for productive activities that would keep government functions moving while affording gainful opportunities to the youth.

The question of balanced budgets is no longer as sacrosanct as we may wish in both private and public organizations. What however is key is the sourcing or the costing of the resources made available to government and of course what use the same is going to be put to

Justification for Debt

From the above examples, what we all need to be convinced is that public borrowing is a positive strategy especially in lean times when the economy-government and businesses are operating nominally. The rise in public debt leads to a corresponding rise in public works and activities and this implies enhanced aggregate demand and a rise in the level of incomes and employment, justifying the debt.

Probably some of us need to be reminded that the United States continues to finance a colossal percentage of its budget through borrowings from China. If and when it is cheaper to use borrowed capital than equity (own money), we should encourage such strategies so as to release resource from local lenders to extend cheaper credit to local investors/businesses.

In summary, government can continue borrowing provided the public is enlightened on the comparative cost of off-shore versus domestic loans and of course the real purpose for which borrowed funds are used for.

All signals ranging from the resilient securities index, the rate of growth of economy to the exchange rate point to a very stable economy riding on very firm macroeconomic fundamentals.

The writer is a consultant in Public Finance.