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Do not despair about rising public debt; it is for a worthy cause

COMMENTARY
By Faith Munuhe | May 31st 2019

Recent criticisms of the government’s decision regarding debt financing and borrowing lack basis.

The Kenyan government will sell seven and 12-year Eurobonds in order to service a $750 million Eurobond due to mature in June. This, to me, is looking at the bigger picture in terms of investing in our future.

While it is true that public debt has risen since 2013, we must not forget that a sizeable portion of borrowing has funded the Sh327 billion SGR scheme. This is Kenya’s largest infrastructure project since the birth of our nation in 1963.

Apart from improving public transportation between Mombasa and Nairobi, the SGR is going to revolutionise cargo transportation locally and within the region.

It is set to improve our manufacturing industries’ access to outside markets. Import and export exchanges of goods through our Mombasa port are now more reliable and convenient.

Hon Musalia Mudavadi, former Vice President and current leader of opposition party Amani National Congress (ANC), has reportedly expressed concerns that too much debt in foreign currencies could be calamitous for the economy if the value of the Kenyan shilling drops. But according to the IMF, the shilling has for the most part remained steady against the dollar since last year, mitigating his concerns.

Emerging markets

Historically, unlike most of our African neighbours, Kenya has never defaulted on any foreign debt. There is no reason to believe that this will occur in the future, since investments in the future tend to yield great returns.

Economists with expertise in emerging markets have cited declining attitudes towards emerging markets, rather than mishandling of the Kenyan economy, as a cause of concern.

The current account deficit is declining, and foreign direct investments (FDIs) are injecting growth into our nation’s finances.

On another note, there is yet more money to service our national budget. A new income tax bill is set to increase tax revenue. More importantly, the campaign against corruption has shown that there is still more leeway in the national budget due to illegal expropriation of funds.

As crackdowns on those in government jobs and state ministries show the extent of funneling state money into personal accounts, and their assets are frozen, there will be a significant increase in reclaimed funds to give back to the public through social spending and debt servicing.

Investment in ICT (Information and Communications Technology) services stems from the identification of improved technology as a key driver of the Big 4 Agenda. Greater technological advances have a direct positive economic impact on our economy.

No doubt, Kenya is on the right track to being part of a fourth global industrial revolution. Since 2013, more than 6,000km of fiber optic broadband infrastructure network has been laid across the country.

Global markets

The 2019-2023 National Broadband Strategy seeks to provide 3G broadband coverage to 94 percent of the population by 2020, along with increasing digital literacy in schools to 85 percent and in the workforce to 50 percent.

In practice, what is the importance of this? With greater internet access, the fibre optic expansion should reduce the cost of doing business and improve service provision.

It will expose our youth to unprecedented access to global markets both in their education and as they conduct business.

Kenyans are already used to using mobile money transfer technology such as Mpesa on a regular basis, and we are recognised globally for the tech innovation that emerges from the Silicon Savannah.

Global tech giant Microsoft has made this recognition official by opening the first Microsoft Research and Development innovation center in Africa in Nairobi.

Borrowing money to fund high-yield investments is the most responsible and effective way to achieve the prodigious development goals that will power us into a brighter future.

The result of national expenditures on infrastructure and technology will help us become an economically prosperous nation, with an educated and tech savvy young workforce. Let’s not lose sight of the bigger picture.

Ms Munuhe studies International Relations at the University of Nairobi.

 

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