The Effect of Public Debt on Kenya’s National Security Budget

Abstract

The relationship between Public Debt and National Security budget is premised on a country’s economic situation. Generally, economics is the driving force behind any country’s pursuance of National Security interests. Therefore, Public Debt is viewed as one of the major factors influencing a country’s economics and consequently impacting on National Security budget. Kenya’s Public debt has been on an increasing trend since independence in 1960’s and was observed to be on the precipice of economic crisis. By the end of December 2020, the public debt in Kenya had accumulated to Ksh. 7.28 billion, representing an estimated 68.7 percent of GDP. This is beyond the recommended IMF debt to GDP threshold of 60 percent. Kenya has however, shifted the threshold to 9 trillion (about 87 percent) and was considering to further shift it to 11 trillion. The burgeoning public debt is a source of public concern on its looming implications on general wellbeing of the country and especially national security. The effect of public debt to national security has been associated with adverse effects it has on National Security sector especially during its repayment periods. In this regard, the study sought to establish the relationship between Public Debt and National Security sector budgets by examining the debt profile of Kenya. Further, the study estimated the effect of public debt on national security budget. The relationship between Public Debt and National Security was evaluated using trends in figures of annual budgetary allocation to the three National Security Organs enshrined in the Constitution of Kenya (2010). Public debt and Realism Theories were embraced in the study to conceptualize the relationship between the variables of Public debt and National Security. Public Debt Theory focuses on the political, economic, and social impacts of borrowing funds on National Security and general wellbeing of the State. The theory argues that borrowing leads to irresponsible expenditures because of being an easy source of income and causes deterioration in the functioning of economic life. Realism Theory that is premised on role of human behavior in policy decision making process within government, was adopted to explain the relationship between Public Debt and annual budget allocations to National Security sector. Realism Theory plays a major role in performance of National Security Organs since most of the principles governing the security sector are derived from the theory. The study adopted a mixed method, combining descriptive analysis, correlation research design, and regression analysis that exploits secondary data on public debt accumulated by the government and data from National Treasury on government revenues, debt servicing, and GDP. Most of the data was gathered from the National Treasury, CBK and KDF, NPS and NIS. The study established that despite xii a consistent increase in public debt over time, the budgetary allocations to National Security Organs are lower (7.7 percent) than the proportion of the increase in Public Debt (18.3 percent). In addition, the share of national security budget to the total national budget has been on a declining trend from 11.8 percent in 2014 to 8 percent in 2020. This trend is the same across the budgetary allocations to the three national security organs. As allocation to debt servicing increases, it exerts pressure on the revenue kitty and the country’s budget and therefore the government tend to prioritize servicing due debts over allocation to National Security Organs as the budget increases. The study further estimated that public debt decreases national security budget by 6.4 percent holding other factors constant. Additionally, it established that debt servicing, affects budgetary allocation to national security by about 10.2 percent. This implies that the adverse effect from increase of debt servicing supersedes the positive effect of additional public debt on budgetary allocation to National Security. In this regard, the study recommends the need to diversify sources of financing national budget to avoid over-reliance on public debt. In addition, the study recommends that the government that public debt growth rate should not exceed the revenue growth rate of the country. This will ensure the budgetary allocation to annual debt servicing does not increase over time and that a bigger share of budget is left to finance National Security sector and other government departments. Further, the study recommends the reduction in uptake of public debts especially on the external debt portfolio and prioritize uptake of domestic debt which enables the lenders to re-invest back into the country’s economy and generates more revenue to the country, thus increasing total revenue which translates to an increase in budgetary allocation to National Security sector and other public sectors. This is because some components in external debt are associated with high interest repayments and are highly volatile to changes in exchange rates. In addition, reducing public debts has an ultimate effect on reduction in debt servicing over time.