Debt and Macroeconomic Stability in Kenya; Managing Debt

Abstract

There persists to be an intensifying deliberation on the growing public debt on macro-economic variables in many nations of developing states, hence the need for a clear understanding of the role of public deficit to inform appropriate policy framework. This paper seeks to inspect the consequences of public debt/obligation on macroeconomic stability in Kenya from 1980-2019 sourced from the Kenya National Bureau of Statistics-KNBS, Central Bank, and the World Bank. Specifically, evaluate the consequences of foreign debt on macroeconomic stability in Kenya. The research paper took on board the Endogenous-growth theory, the Crowding-out effect, the Debtoverhang hypothesis, and the neo-classicalists theory and for the objectives. The study technique relied on financial data from the Central Bank and the Kenya National Bureau of Statistics (KNBS), while economic data was gathered from the World Bank for the period 1980-2019. To bring together time series secondary data, the scholar use a data-grouping schedule as an instrument. The purpose of this article is to determine the impact of public liability on Kenya's economic success from 1990 to 2019. In conclusion, external debt positively influence economic growth in the short-run but has negative implications on the Kenyan economy in the long-run. Equally, inflation, real interest rate and real interest rate have positive bearing on Kenya economic in the long-run albeit the effect is negative in the short-run. This7 study7 recommends7 that7 public7 borrowing7 from7 international7 lenders, as well as domestic borrowing, must be kept in check. Nonetheless, 'debt overhang' used to be a non-issue because it leads to increasing interest and 'crowding out' of private investment.