DEFICIT SPENDING AS A BIG DOSE TO ECONOMIC BOOM IS HEAVILY TAXING ORDINARY KENYANS

<!--[if gte mso 9]><xml> Normal 0 false false false EN-US X-NONE X-NONE </xml><xml> </xml> <style> /* Style Definitions */ table.MsoNormalTable {mso-style-name:"Table Normal"; mso-tstyle-rowband-size:0; mso-tstyle-colband-size:0; mso-style-noshow:yes; mso-style-priority:99; mso-style-qformat:yes; mso-style-parent:""; mso-padding-alt:0in 5.4pt 0in 5.4pt; mso-para-margin-top:0in; mso-para-margin-right:0in; mso-para-margin-bottom:10.0pt; mso-para-margin-left:0in; line-height:115%; mso-pagination:widow-orphan; font-size:11.0pt; font-family:"Times New Roman","serif"; mso-ascii-font-family:"Times New Roman"; mso-ascii-theme-font:minor-latin; mso-fareast-font-family:"Times New Roman"; mso-fareast-theme-font:minor-fareast; mso-hansi-font-family:"Times New Roman"; mso-hansi-theme-font:minor-latin; mso-bidi-font-family:"Times New Roman"; mso-bidi-theme-font:minor-bidi;} </style> Ever since the Jubilee government romped into power in 2013 the country has witnessed positive economic changes albeit on deficit spending. As it is, the economic prospects for example of LAPSSET (Lamu Port, Sudan and Ethiopia transport corridor) and SGR (Standard Gauge Railway) are beginning to take shape.

It’s evident that the LAPSSET and SGR underlie the significance of real sustainable growth. However, underpinning Kenya’s 53 years of economic instability are the following precipitated problems namely: - debts upon debts, greed, covetousness, corruption embedded in the psyche of the country’s socio-economic and political structure, inflation rate of 6.45%, Kenya’s external debt estimated at 3.2 trillion and budget deficit for 2016/2017 at $6.96 billion

Notwithstanding the above challenges, the economy is resilient. It hovers between the growth rate of 5.8-6%. Discouragingly, Kenya is ranked at position 157 globally in terms of economic performance index the GDP per capita stands at $1,800 and again, the external debt averages at 619.28 billion (this is between 2000-2016) reaching an all-time high.

Domestically, a sign of exponential growth can be seen, coupled with great railway engineering works.

The construction is confronted with enormous physical difficulties like land acquisition and compensation to natives. The completion of SGR will fast track and increase commerce in numerical form by comparing the value of export as a result from Kenya now with the old railway system 100 years ago. Goods that found market after two weeks will do so in four days. 

Standard gauge railway as was old railway system will do away with the exclusiveness of people and promote doctrine of equality of mankind. It will continue to educate people enabling them to travel cheaply with comfort to visit headquarters of civilization and prosperity.

Kenya is heavily indebted to her bilateral partners hence the reason as to why it should not throw caution to the wind. Deficit spending as a big dose is heavily taxing ordinary Kenyans. Year in year out deficit spending has been the hallmark of Kenya’s fiscal budget.   

To quote Robert Borrud, in his book “like a bulging wall, will you survive the 1990 economic crush?”

He says:-

Likewise many businesses decided to throw caution to the wind during this time and get their piece of the credit pie; increased debt was taken on as a means to boost expansion and to maximize profit, short term profits especially in quarterly reports became an obsession rather than concern for long term growth and health of company. Again the same attitude dominated: get most out of life now.

Deficit spending by government on mega projects has infected quite a good number of Kenyans. Deficit spending means spending or expenditure of money not from one’s pocket but from a lender or financial institution like banks. It’s basically living beyond our means.

Today the gradual change in the status of the building societies and their deposits illustrate the tendency for the boundary to shift. Manifestly so, construction industry is caught up in the web of deficit spending to finance its activities.

The disadvantage of the deficit spending is that it gives the borrower the elevated sense of affluence hence people think highly of them as monied (rich).

However, this false sense of elevation leads to impulse expenditure that diverts funds, leading to longevity in servicing debts and huge accrued interests, leaving white elephant projects.

Untapped natural resources (for example oil, is a solid investment resource to boost country’s foreign exchange earnings and boost economy)

Another highly regrettable aspect is debt defaults and theft of large sums of money, which may lead to the folding up of the savings and loans industry, and hence collapse of the banks.

A reason for optimism however is that, the climate for investment in Kenya is changing for the better. If the deficit spending is done prudently, the country is set to be a preferred destination for investment and an economic boom.

The assenting to law by President Kenyatta of Banking Amendment Act is a relief to deficit spenders. It caps banks to offer fixed rate of interest on money borrowed. My question is, is it a way of trying to control money supply indirectly? The principle behind this idea is that money varies inversely with interest rates. Higher interest rates tend to reduce the demand for money because they increase the opportunity cost of holding money. 

With nominal interest rates across banks, the burden of servicing won’t be onerous.

As a country though, the solution to Kenya’s debt is to approach an international agency to take over claims from banks, buying the debt at a discount. The debt could then be restructured to pass on the benefit of discount to the debtors in future.