As of 2016, Kenya’s government debt equivalent to Gross Domestic Product was 55.20% from 38.2% in 2012, representing a steady increase of 17% since 2012. The debt to GDP ratio is the debt of a country’s government (amount) and its GDP Product (years), with 60% being the accepted barometer (EU standard criteria), which means that Public Debt should not exceed 60%. Leading us to believe that the Kenyan government debt ratio is somehow sustainable, but the steady rise over the year means we are on track to break the 60% mark.

But what has caused the Ratio to rise steadily over the years, from 38.2% (2012) to 55.2% (2016), what underlying factors have contributed to the Ratio increasing over time , has the Government deliberately encouraged the constant increase in the Ratio, has there been a positive or negative impact on the economy, can the Government handle runaway public debt, can unlimited total monetary sovereignty help tame runaway public debt.

What is the public debt? According to Wikipedia, public debt is how much a country owes to lenders outside of itself, which can be categorized as internal debt (due to lenders within a country) and external debt (due to foreign lenders), or in terms of duration; Short (1 to 2 years), medium (between long and short) or long term (10 years or more).

As of September 2016, our public debt was Ksh 3.6 trillion from Ksh 1.5 trillion (2012), of which external debt was Ksh 1.7 trillion and internal debt was Ksh 1.85 trillion ( Central Bank of Kenya). That is, for every Ksh 100 collected by the Kenya Revenue Authority, Ksh 32 was spent on servicing their debts.

As the national budget increases every year and the KRA falls short of its revenue collection target, we are faced with budget deficits, forcing the government to borrow funds, either externally or internally. Perpetuating a vicious circle where the only result is the constant increase in our Public Debt.

If we compare our Debt-GDP ratio with that of other countries, for example; Japan: 250.40% (2016), US: 106% (2016), and UK: 89.3% (2016). by increasing it will become unsustainable and will probably go in the opposite direction according to the World Bank and IMF. So why do countries with a higher debt-to-GDP ratio than ours have sustainable national debt? What mechanisms do you use to manage your Public Debt? Can our government with its limited options use those mechanisms, instead of heavy taxes and loans, with their effects being passed on to us?

Unlimited monetary sovereignty shows how countries like Japan, the US and the UK can maintain their national debt. Monetarily Sovereign Government means; they have the exclusive and unlimited power or ability to create their own sovereign currency, that is, they have full and absolute control over their sovereign currency.

That is, these governments can do whatever they want with their own currency, that is, they can equalize their currency to any unit or amount (1 USD = 10 Euros or 1 USD = 5 Ounces of Gold), as creators of their own currency they have property absoluta, therefore, you have other reliable options besides taxes or loans, or you are forced to declare bankruptcy, and you can pay any bill of any size, at any time.

By contrast, non-monetary sovereign nations such as the EU have given up their exclusive and unlimited power to create their own currency and therefore use a single currency; the euro. Limited to creating euros, the ability of these states to create or obtain money is tied to existing laws governing lending and taxation.

Kenya is a monetary sovereign country, but does it have unlimited power or control over its own currency? Can it be used to settle debts or payments to another country? Can it stand on its own without the support of another currency or product? like gold

Despite being a sovereign monetary nation, Kenya has limited control over its own currency; it creates emissions and controls their circulation in the country, and accepts in payment of taxes and other obligations. But it will be difficult or impossible to pay other countries using Ksh. instead, a generally acceptable currency such as USD will be used for payment.

Our currency is backed by other Currencies such as the USD, the British Pound, the Euro or Commodities such as Gold where the Central Bank has created Reserves for said currencies to meet the Country’s obligation to pay the external debt and for Imports .

So equating our currency to the US, Japan, where they have free reign to print more money to meet their obligations and use it to pay foreign debts, is impossible. We have no choice but to find other ways to raise money, such as raising taxes, borrowing (internal or external), selling government bonds, etc.

If the Government can create good fiscal policies, reduce or eliminate institutional corruption, promote local industries, maintain a favorable balance of payments position, reduce recurrent expenses, create employment opportunities and participate in development projects. Then we can maintain a favorable debt-to-GDP ratio and support our public debt without necessarily burdening citizens with taxes.