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STATEHOUSE GLUTS ARE HAVING THEIR FILL
A thread
https://econscholaruon.wordpress.com/2021/04/09/statehouse-gluts-are-having-their-fill/
A thread
https://econscholaruon.wordpress.com/2021/04/09/statehouse-gluts-are-having-their-fill/
By Moses Muchiri,
No economy can be said to be truly sustainable without future generations enjoying higher per capita incomes and higher per capita consumption levels. Thus, individuals and societies do save up with a view to laying the foundations upon which posterities prosper.
Future generations can, however, not be obligated to do what the current generations failed. Even then, any good deed at the moment boosts the esteem upon which generations are assessed.
Individuals borrow with the hope of repaying at a later date while creditors do lend hoping for better returns in future.
As Robert Solow, the Economics Nobel Laureate, puts it, “If you openly declare your intention to borrow and not repay, no one lends to you.” Economies are, consequently, guided by pure national interests, if they exist.
Kenya's thirst for indebtedness remains unparalleled even us Bretton Woods Institutions push for fiscal prudence in their debt sustainability analysis (DSA).
The building blocks of DSA are anchored upon the pursuit for current account surpluses which not only provide the much-needed resources to service mature loans but also cushion fragile economies against debt shocks.
Besides, nothing could be more desirable than easing the distress even as economies race up to global relevance. Interestingly, debt is considered by some bureaucrats as pocket change with statesmen in government looting as though it were a self-enrichment symposium.
That symposia have failed is evident. What escapes many patriots is that they aren’t really sharing in the loot even as the government endears itself to them.
Infrastructure bonds dominate the country’s debt portfolio. Whether such investments are worthwhile or a sheer waste of time is left to analyst. Nevertheless, the country risks meeting its dead-end should be projects materialize as unproductive.
But, why did the government settle on infrastructural development? Free market fundamentalists posit that the government cannot pick winners. In favoring infrastructural development, Nairobi probably aims at setting the pace for other sectors to follow.
But then, will archaic agricultural practice be transformed in the wake of expressways?
Opinion is divided on the role of debt in economic growth and development. Elmi Hassan, for instance, observes that debt's usefulness depends entirely upon its employment. The table summarizes the ratio of end period value to the beginning of the period.
The periods are 1990-1999, 1999-2009, and 2009-2019.
Evidently per capita GDP has not been constant over time. Per capita debt has, however, surpassed per capita debt in relative terms. This trend is quite worrisome. Hillary Matano fears that the savannah giant will soon be trapped in debt if interventions are not employed timely.
Interestingly, it is not only the government that is at risk. It is, for example, estimated that the government's looting spree of KSH 2billion daily, as admitted by the President, is slightly ahead of KSH 1.4billion borrowed by citizens via mobile phone-based lending platforms.
The question of sustainability is consequently answered in the negative. Certainly, debtors are laughing their way to the stores for sweet burdens!
According to Wainaina, Kenya’s debt situation is at best regretted and at worst kept out of public scrutiny. Per capita debt has risen while per capita output has declined. Eyebrows are, thus, raised on the quality and effectiveness of public debt.
This implies that either labor productivity has declined tremendously or debt use has been unproductive. A probable explanation draws upon illicit financial flaws and channeling financial resources towards ghost projects.
Even then, empirical results suggest that debt has a significant positive effect on per capita GDP.
Brian Kibet observes that current generation’s have perfect foresight as well as the ability to tell apart activities that are beneficial to posterities from wasteful ones.
Thus, he vouches for government’s tendency to advance social good in dismissing sustainability pessimism as unwarranted and premature. To him, individuals can live off debts without suffering adverse consequences.
In any case, the economy is expansive to absorb any challenges inherent in indebtedness. On cost of living, the panelist faults patriots residing on the leeward side of the economy. Unfortunately, instrumental findings paint insignificance of debt per capita on per capita GDP.
Surprising though it seems, governments would either borrow or use tax instruments, but not a combination of both. Vincent Iragena, for instance, doubts the effectiveness of a concurrency in debt borrowing and higher taxes.
Perhaps, Kenya isn’t catching up with her sovereign obligations. Largely decoupled with disingenuous processes and integrity shortfalls, the government is at a development crossroad as Wainaina notes. But then, at what point do governments stop borrowing?
The argument has been job creation even as the government maintains a retrenchment policy.
With a decline in per capita output, possibilities narrow down to either an increase in job creation rate and a decline in labor quality or job destruction rate outweighing job creation rate.
By Moses Muchiri
Friday, April 9th, 2021
By Moses Muchiri
Friday, April 9th, 2021
PS: This article is the first in a series on the role of debt sustainability in Kenya’s economic growth.
Disclaimer: The views are of the panelists, and may not necessarily reflect the position of the Panel.
Disclaimer: The views are of the panelists, and may not necessarily reflect the position of the Panel.
Panelists: Hillary Matano, Brian Kibet, Gideon Wainaina, and Kefa Simiyu.
Moderators: Joan Chebet and Kiplimo Kigen
Moderators: Joan Chebet and Kiplimo Kigen
This thread can be read here: https://econscholaruon.wordpress.com/2021/04/09/statehouse-gluts-are-having-their-fill/
