Some would say that the debt situation is getting out of hand, but maybe there are statistics we may be overlooking that may add some objectivity. By May 2010, Kenya’s public debt was 1,192.2 bn comprising 650.3 bn as domestic borrowing and 542.0 bn as external borrowing. Based on respective auctions after the 20th of August 2010 (and assuming that external debt has remained constant) we can conservatively estimate that public debt has swollen to 1,231.1 bn by today. This represents a 10.46% increase in public debt since December 2009 when the figure was 1,114.5 bn.

The key ratios that Kenyan economists refer to seem to suggest that everything is okay as long as GDP, exports and taxes are rising; this is reflected in the debt to gdp ratio (up to ~48%), external debt to exports ratio (at ~ 7%) and domestic interest to revenues (which is at a very respectable 10%). These ratios are all considerably lower than they were prior to 2004. So despite the swell in debt all the indicators suggest that we’re actually managing our debt well. Well done to the country’s debt management department and CBK (for lengthening the yield curve)!

Maybe now it’s time to focus on the drivers of GDP. They say that 75-80% of the country’s GDP is driven by public consumption. Public consumption should have improved given the low inflation environment and rising imports (complimented by good credit numbers from trade finance and consumer lending; remember the manipulation before). However, CBK’s target signaled by a reduction in the CBR suggests that they want to target domestic private investment. Import statistics suggest that the country is importing less consumer goods (TVs from dubai, etc…) as compared to capital goods (machinery & equipment). These capital goods are being imported by manufacturers, industry and by government for infrastructure projects.

So the question is, is the government crowding out the private sector by undertaking investment in domestic infrastructure or somehow monopolizing funds that would otherwise be used more efficiently by the private sector. The idea here is that the private sector and government would compete for the same resources to develop infrastructure but implement projects at different speeds. Would GDP be accelerated if the private sector took the initiative (or is it the banks that are unwilling to facilitate this by becoming increasingly risk averse).

In the recent Management magazine publication, the Centum CEO Mr Mworia said “Economic growth should ideally be driven by domestic consumption and investment. However, this is not so in Kenya which is mainly a government expenditure driven economy,” he says. “No wonder, the loan rates are not local market driven leaving the investor at the mercy of those who fund the government spending,” he notes. So is Kenya taking the French/Italian model where GDP is spurred on by government investment rather than the US model where it’s all private sector development (I hope I’m making sense here).

Psss. Is there a banking cartel messing up the interest rate structure?

Actually meant to say private consumption.

@ Scubidu
I'm no expert either, government wants to drive investment but they can only encourage it eg improvng infrastructure, security, energy etc generally create a conducive environment for business activity. If all that is in place, private sector takes up the challenge, exploits the opportunities

eg the cck, safaricom, zain issue on tariffs will force all the mobile phone companies to now concentrate on data as they are all looking to loose major revenue on voice business. At least Safaricom is ahead on that front, and Zain is developing 3g, but what happens to the others. Ok now I'm digressing, my point is cck's intervention will encourage these changes.

On unrelated matter, me thinks the Mobicom dealer had an idea of these tariff changes, and made their move, the question is, can Orange match up to this compe?

@goldendelight. You have a good point. But it's a question of whose more qualified? Who has a better CV or track record? And maybe who employs better? I also think that the private sector can also do infrastructure development...I remember some time ago someone had suggested private public partnerships, I wonder what happened to that? Don't know much about Mobicom, polee.

@wa_ithaka. Aahhh good point. Very logical. So if we use you to represent the economy and your wealthy Uncle as the government. Dorman's as local firms and Nescafe as foreign producers. Let's try an experiment and see if we look at this issue.

(1) With your monthly savings+debt, would you buy Dorman's Kenyan Coffee or imported Nescafe?

(2) If you buy Nescafe, who benefits in your economy?

(3) If you do buy Dorman's, where will they get the capital to compete with Nescafe to grow their operations, if they have access to only 3%? If you consume more of them, they'll need to expand, so would it be logical to spend more on them and save more for them; i.e., more than 3% for the good of Dorman's?

(4) If the bank's want to reduce their risks who do they lend to, your filthy rich uncle or Dorman's? Remember the bank's are lending only 3% so it's a sensitive issue. If it's not doing that then it's using it's unlimited credit facility but the question remains would your filthy uncle or Dorman's use the funds better for more consumption (afterall your economy is measured on how much you spend/consume monthly)...isn't that the issue?

Scubidu- might be the time of the day, but I'm not sure I get your pt. Mine was very simple. Debt funding your spending will only lead to one outcome.