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Is the rising public debt a strategist move by a government not sure of re-election?

UREPORT
By Eileen Wakesho | November 18th 2015

The recent months have seen overwhelming debate on the increasing public debt in Kenya. The debate has been heightened enough to cause alarmist public opinion gauging by recent media reports.  The National Treasury has previously reported that the high public debt is due to heavy government borrowing to fund massive infrastructure projects such as the Standard gauge railway, Lamu Port and South Sudan Ethiopia Transport project (LAPPSET), the Galana Kulalu Irrigation Scheme among others. Worries of Kenya becoming the ‘Greece of Africa’ have prompted the Cabinet Secretary in charge of finance to respond and assure Kenyans that the public debt is sustainable and within acceptable public debt thresholds. To buttress this position, the government has compared Kenyan debt level with what is prevailing in European economies that have higher debt to Gross Domestic Product ratios. However, it does not help to notice from a layman’s lens that fundamental indicators portray a picture of a spluttering  Kenyan economy. These include: the struggling Kenyan shilling, low export levels, unemployment perennial strikes in public sector, rising interest rates, inflation among others.

According to the Annual Public Debt Report released last year, the public debt stood at 47.9% of the Gross Domestic Product (GDP). This is a steady increase from June 2013 where the debt stood at 42% of the GDP. Statements like, “The public debt is sustainable over the medium term,” send more questions than answers. Such questions include: Is the public debt really sustainable? How sustainable is it? And what is driving the enthusiasm by the government to borrow?  Is the government deliberately spending beyond means? Is the rising public debt in the country driven by political motives?

Alesina and Tabellini, 1987 in a paper on, ‘A Positive Theory of Fiscal Deficits and Government Debt in a Democracy’ argue that public debt is used strategically by each government to influence the choices of its successors. They pursue an ideology that suggests that a government that is not sure of its reappointment may choose to accumulate debt and starve the government that gets appointed. The huge debt incurred by a government that lost re-appointment may dictate indirectly choices of the government that comes to power. According to the results of this model that were empirically tested, the equilibrium level of public debt tends to be larger when the likelihood of the current government to be reappointed is very low.

This theory spurs my layman thinking of whether or not the public debt is genuinely rising due to the massive infrastructure development projects or has an underlying political game due to the uncertainty of reappointment of the current government in the next election. It may be too early to think of elections, but any good strategist, appreciates that long term strategies bears more fruit than reactive interventions.

The government has an obligation to make all tax payers, regardless of whether they are economists or not understand the reasons behind the rising public debt and the exact implications of this policy. This is because public debt is simply postponed tax burden and the public has to be convinced that it  is a burden worthwhile to bear.

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