The Impact of Government Borrowing on Private Sector Credit in Kenya

Abstract

Kenya‘s National Debt is just over 3.77 Trillion-mark with Domestic Public debt reaching a level of KShs 444.7 billion in 2016. This project examined the impact of public domestic debt on private credit levels in Kenya over the period 2008-2016, an investment function with three independent variables, namely treasury bills, bonds, and central bank overdraft. The dependent variable is private sector credit. The secondary data obtained from Central Bank of Kenya (CBK) and Kenya National Bureau of Statistics (KNBS) was used. SPSS Software was used in running linear regression. The results indicated that high levels of domestic borrowing have negatively affected private investment. The results also showed that the impact of public investment on private investment was not as significant as public domestic debt, variable suggesting that public investment has not been complementary on private investment. Variability in Interest rates have negatively impacted on private investments, while with regard to GDP, economic growth has induced more private investments. The findings of this paper call for designing appropriate policies that deal with the ever-rising domestic public debt and the sale of domestic debt. The results have important implications for fiscal management in the context of the country‘s crying need to generate faster employment growth, meet the Millennium Development Goals, and attain the Vision 2030 goals. Research results are also of significant value to the academia in helping them design other longitudinal studies.