Effect of Public Debt on Economic Growth in Kenya

Abstract

Debt crisis has been a major issue for many nations especially developing nations of Africa such as Kenya. In the past years, the Kenya’s gross eternal debt has been on the rise. In 2017, Kenya had a public debt of 57.10 percent of the nation's Gross Domestic Product. From 1998 to 2017 the Government Debt to GDP in Kenya averaged 54 percent and reached an all-time high in 2000 at 78.30% and an all-time low of 38.20 in 2012 (CBK, 2018). The objective of the study was to determine the effect of public debt on economic growth in Kenya. A descriptive study was used. The study collected secondary data from reports of the Central Bank of Kenya and the Kenya National Bureau of Statistics. SPSS and STATA were used for analysis of the data where diagnostics tests and inferential statistics inform of regressions, correlations and ANOVA were performed. The study concluded that there was a positive relationship between GDP growth rate and public debt though the relationship was weak and insignificant. There was a strong negative correlation between GDP growth rate and inflation rate. Further there was a strong negative correlation between interest rate and GDP growth and there was a positive correlation between exchange rate and GDP growth though it was weak. The study recommended that the government should try to control its public debt and only invest in the infrastructural based projects from the debt so that this may have an impact on the economic growth. The Kenyan government should control the money supply in the economy so as to control the inflation rate. The Kenyan government should encourage the diversification of industries by encouraging industrialization as opposed to relying on agriculture so as to reduce on the problems of import-based industries.