External Borrowing, Political Regimes and Economic Growth in Kenya

Abstract

Public debt management is the act of scheming and executing strategies for a sound management of public debt in order to realize government funding needs, to achieve the objectives and management goals of the management that it can establish, as developing and sustaining an efficient market for government securities (Wheeler, 2004). The argument has been that public debt is used to finance economic development, that is, the basic reason for expansion of public debt was to raise funds required for economic development. External borrowing was never meant to fund current expenditure. However, this has changed and governments do borrow to meet the current expenditure. The study sought to establish the relationship between external borrowing and the economic growth; and to determine the effects of regime changes on external borrowing and economic growth in Kenya. The study was anchored on two theories; the Keynesian theory and the classical theory. The study used descriptive research method. We used secondary data which was collected from Central Bank of Kenya, published on their website. Data was collected for the three r political regimes which was in power from1992 to 2021. ANOVA and regression techniques were used to analyses the data. The results showed that regime 2 had the highest growth in GDP at 5% while regime 1 had the lowest growth in GDP at 2.2%. Regime 3 on the other hand had the highest growth in external debt of about 22.6%. The P-value of estimated coefficient of external debt is zero, meaning that external debt does not impact economic growth. In all the three regimes, there appear to be no relationship between external debt and economic growth. If debt is not put into proper use, then it will have no influence on economic growth. External debt and political regime are not linked to economic growth, that is, there is no interaction between regime and external debt as determinants of economic growth. The study recommends that the Government of Kenya should put external debts into projects that will lead to growth of economy. External debts should not be used to fund recurrent expenditures.