In defence of ‘heavy’ government borrowing

Figures alone cannot be used to judge a country. Better roads, a major irrigation scheme and a standard gauge railway will all have a positive effect to the common Kenyans, who will have smoother rides home, have their produce to the market faster, and spend only a few hours from Nairobi to Mombasa. Should all these be thrown under the bus and the government crucified for having a vision and not enough money?

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By Barnabas Onyonka

The guy from Central Bank will tell you it is bad. The expert and the economist will tell you that, as a country, we are “walking on a slippery slope”. The politician will tell you if the trend continues, “the country is headed for the dogs”. The general consensus among wananchi is that it is not good. This is the prevailing opinion, but the President borrows anyway.

Why, you may ask?
I will tell you why. Public opinion is shaped by what the politicians are saying; politicians merely echo aloud what the experts say; experts are listening to the guy from Central Bank; the guy from central bank fears for his job as the blame of rising cost of living falls squarely on him. The President, however, can afford to gamble, if it goes wrong, his successors will carry the cross. If it goes right history will applaud him.

Debt 101

Kenya’s head-on plunging into debtville is not as bad as portrayed. This is because borrowing to carry out projects in infrastructure is like an investment. And just like investment can go wrong or right, so is a country that borrows to carry out infrastructural development. When a government borrows, this is what it has in mind. First, that the projects carried out will spark economic growth; second, that the economic growth will encourage more investment, and this will lead to increased tax revenue, which will compensate for interest on the loans in the long run.

The Southern Bypass, the Thika Superhighway, and now standard gauge railway have all been built using borrowed money. Having in mind that all major loans that Kenya has taken (especially from China) have all been used in development, there should be no major cause for alarm.

Necessity

When I hear people complain about the government borrowing, I am tempted to ask, “how then should the government have done it? How should a developing country that wants to carry out a project that is almost a quarter of its budget raise money?” In this world there are only two ways to raise money: either borrow or save. Obviously, a government can’t save. Besides that, in macroeconomics, savings aren’t the best for an economy. And what’s the point of a government saving if it’s going to take well over half a century to accumulate enough dough able to get a feasible project on its feet? That makes borrowing the only option to raise money enough to carry out a worthwhile project.

Currently, Kenya’s debts will be cleared by the year 2057. Well, it is easy to frown on this fact, but only if you don’t really comprehend what it implies. If the government were to save, then 2057 would be the year that it will have raised enough money to carry out current projects, some of which are complete now, while some are ongoing. Isn’t it fair then to say that government borrowing is prudent? Instead of burdening the current generation with high taxes, it is better to borrow and spread the burden over a long period of time. That’s surely the way to go, is it not?

Debt is a molehill, not a mountain

The whole issue of debt is misunderstood, and the general attitude towards it far-fetched. A snake that does not bite deserves not to be called a snake; a ticking bomb is only a bomb if it will go off. Simply put, danger is only danger if it materialises. With this in mind, is it fair to label Kenya’s debt levels as “bad” or “dangerous”? I think not.

In 2016, The Euro zone had a 90.7% debt to GDP ratio; doesn’t Europe still boast of the best quality of life index, of all the 7 continents? In the same year, Japan’s debt to GDP ratio was at a staggering 250%; isn’t Japan still the economy to beat in Asia? The best economies in Europe, France and Germany have ratios of 96% and 71% respectively; aren’t developing nations told to follow the example of well-run European nations?
Tell me who is number one economic power on the planet and I will tell you that he, Uncle Sam, has a debt to GDP ratio of 104%; isn’t America the benchmark and crème de la crème in matters of economic policy, and general prudence on the same? So what’s the big deal when Kenya’s debt hits the 50% mark? No big deal if you ask me. Clearly, the “experts” and a few politicians have blown the debt issue out of proportion.

Figures don’t define a country

The main and most important agenda of a good government is to improve the quality of life of its people through better healthcare, better infrastructure and investment in the future’s manpower by means of high quality education, not to churn out economic figures pleasing to some organizations somewhere in Europe, and certainly not to seek validation of self-proclaimed experts in faraway lands whose conception about Africa is fictitious in the same measure as it is painfully wrong!

Instead of concentrating on statistics, numbers and opinions of the so-called developed countries, a responsible government gives priority to the welfare of its citizens. A country’s overall welfare is divided into two; economic welfare and non-economic welfare: A country can be doing very well economically while its people (read majority of its people) are living pathetically. Look at South Africa’s economic figures and you will get a picture of a second world country approaching “developed country” status one step at a time. Look past the economic figures though and you will realise that it is a story of two different worlds in one country. So much so that xenophobia has found a place in the hearts and minds of a good number of South Africans.

To understand this welfare thing, let’s take an example of China and Greece. The People’s Republic of China boasts a very vibrant economy; in fact it has the second largest economy on the planet. Because of its business-friendly environment, easy availability of raw materials and high rates of skilful manpower, it has won the hearts of many companies in Europe and US, who have set up their manufacturing plants in the country. Economically, China is a benchmark. Countries like Greece, which has a bad economy and is struggling with debt, can surely learn a thing or two from the Red Dragon of Asia. Look on the other side though and you will be surprised. Greece beats China in the quality of life index (148.32 to 90.95) and life expectancy (81 to 75 years); even the retirees in China receive peanuts as compared to their peers in Greece, who pocket an average of €882 (Sh99,300) per month.

Figures alone cannot be used to judge a country. Better roads, a major irrigation scheme and a standard gauge railway will all have a positive effect to the common Kenyans, who will have smoother rides home, have their produce to the market faster, and spend only a few hours from Nairobi to Mombasa. Should all these be thrown under the bus and the government crucified for having a vision and not enough money?

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