Rising public debt is a huge burden to economic growth

A recent news article projected that Kenya’s borrowing run rate under the Jubilee administration will be at Sh2.5 billion a day up until the next election. This will mean that nearly 60 percent of taxes will be committed to debt repayments, leaving little cash for urgent programmes such as revamping the ailing health sector.

To keep up with such a steep repayment schedule, the State will certainly apply a more aggressive tax regime – one which might squeeze businesses more and undermine the future of enterprise in Kenya.

Not only does rising public debt weaken fiscal and monetary policy, it also saps the creative energy of the country and complicates the national project of becoming a stable prosperous society. Weaning the Kenyan economy off its dangerous addiction to debt must be the singular objective of this generation of policy makers.

The call to seek greater debt is often presented as a necessary component of providing budgetary support. Perhaps then, this is where any meaningful discussion to reform our fiscal policy must begin. Besides the ceremonial budget reading day that takes place every June, very few Kenyans are invested in understanding the entire budget making cycle which spans several months. Yet this is the process that should receive our most urgent attention.

There is a growing conviction that our national budget is bloated, and many functions can be better handled either by county governments or even by the private sector. The central role of the state is to provide law and order, infrastructure, security and adequate access to justice. Almost all other functions can be transferred to county governments and others privatised.

It appears rather odd when the national government is invested in real estate, supermarkets, hotels and telecoms while the judiciary is perennially underfunded and while many parts of the country still face grave insecurity. A candid assessment of roles and responsibilities of the various actors in the economy is possibly the most important conversation that Kenyans need to have.

Much of the confusion that informs our borrowing agenda is anchored on the idea that it is the role of government to create jobs. While the government can indeed create an enabling environment for business to thrive, there is great evidence that shows that private sector has a better track record of deploying innovation and creating jobs.

It only follows that the critical role of government in job creation should be focused on sharpening monetary policy to deliver low stable long-term interest rates and adequate cash circulation throughout the economy. Furthermore, counties should be considered as a critical cog in the economic blue-print of the country. Ten years after the implementation of the new constitution, political power has effectively been devolved to the counties but economic power has still largely been retained in Nairobi. The promise of a blossoming middle-class across the 47 county capitals remains a pipe dream. A clear strategy on how counties can sweat their assets to generate own-source revenue will remain a critical factor moving forward.

If unchecked, rising public debt poses a grave danger to the socio-economic fabric that binds the nation together. It places impossible demands on a nation to squeeze every shilling out of citizens in order to pay off creditors. Thomas Jefferson wrote extensively on the long-term damage that is consistent with high public debt. “If we run into such debts, as that we must be taxed in our meat and in our drink, in our necessaries and our comforts, in our labors and our amusements, for our callings and our creeds, , our people, must come to labor sixteen hours in the twenty-four, give the earnings of fifteen of these to the government for their debts and daily expenses.”

The vision of a prosperous, self-reliant Kenya is still within our reach. But it will require the collective reimagining of the Kenyan economy, harnessed and channelled into creating an open market-based economy. Kenya’s main competitive advantage remains in its human capital; its highly talented professionals who are delivering world class standards across every major city in the world.

Tapping this global expertise coupled with sustained investments in education, healthcare and roads will herald a new growth trajectory. Ultimately, incentivizing a culture of innovation and reducing obstacles to conducting business will be the masterstroke that will put Kenya firmly on the path to wealth creation, ultimately breaking the vicious cycle of debt that has weighed heavily on Kenya’s economy.

Mr Gichinga is Chief Economist at Mentoria Economics