News Analysis
Cumulative debt per given financial year
Source: Government of Kenya Economic Survey 2016
‘Ouroboros effect’
The Ouroboros effect comes into play when the
government on one hand caps interest rates to make
credit affordable for the customers, while on the flipside
its insatiable appetite for domestic money continues to
drain the ‘affordable’ money from the market as banks
characteristically aim to mitigate against lending risk.
Infrastructure development is necessary for the
long term economic competitiveness of a nation but
it shouldn’t be implemented in isolation, and at the
expense of other economic activities.
According to the Budget Review and Outlook Paper of
2017, total cumulative revenue as at June 2017 amounted
to Kshs 1.4006 trillion against a revised target of Kshs
1.455 trillion. It further reveals that except for Excise
duty that fell short by Kshs 4.8 billion, tax revenues were
largely above the revised target.
With an annual deficit of almost Kshs 900 billion,
government expenditure seems to be increasing while
revenues collected have lagged behind. Dr. Samuel
Nyandemo, senior lecturer at University of Nairobi’s
School of economics says that huge borrowing crowds
out other expenditures in an economy and places an
enormous burden to the future generations.
“The high borrowing crowds out private investment
which is the engine for growth and productivity in an
economy. After debt servicing and catering for the
recurrent expenditure, little is left for development in
education, health and other essential services which is a
prerequisite for growth,” he says.
Even with healthy economic growth percentages
averaging 5-6 percent, unsustainable public debt would
undo all the gains and therefore appropriate austerity
measures will have to be introduced.
Infrastructure development
is necessary for the long term
economic competitiveness
of a nation but it shouldn’t
be implemented in isolation,
and at the expense of other
economic activities.
The professional accountants body in a 2017 research
paper suggests that external financing can be attained
by attracting foreign direct investments, created by
providing a conducive macroeconomic environment.
ICPAK further suggests the presence of a
comprehensive debt servicing management policy, which
will not stifle other key economic progress activities. The
loans should be utilized towards productive functions of
the economy alongside the need to reduce inefficiencies.
They recommend a National Advisory Credit Control,
Regulatory, and Management board that offers advice to
the government on the public credit situation and how
best to mitigate against excesses. The country will have
to enhance productivity and significantly improve the
products and services that bring in foreign exchange
revenue.
Overall, public debt should be contained, for
economic growth gains to infiltrate across all sectors of
the economy. TB
NOVEMBER 2017 • THINK BUSINESS | 7