How long will the ghost of debt haunt our country?

Like a ghost, debt haunts our no longer young nation. The recent media report that 92 per cent of our tax was used to settle public debt in one quarter left my head spinning. How did we get there? How should we get out?

Simply put, we get into debt when we leave beyond our means, out of necessity or want to invest or enjoy comfort earlier. For individuals, it’s easy to explain. 

Trying to keep up with others could lead us to debt. We may want to drive a better car, live in a better residence, have a more lavish wedding or just show off; conspicuous consumption to quote Thorsten Veblen. This affects more of the middle and upper classes. Status often matters more than ability to pay debt 

For the lower class, debt is often a necessity. When a child is sick or has nothing to eat, fuliza or using other online platforms to get money is the only option.

Your neighbours or relatives might not help. Add the fact that they have no savings to draw from. Did online borrowing grow during COVID-19? 

Let’s add that some get into debt because it’s seen as “free money.”  With no intention of ever paying back. Is Hustler Fund a victim of that?  Remember bad debts and their provision in financial institutions? 

We also borrow to enjoy future comfort today. Think of a car or furniture loan, or a mortgage. 

And the most celebrated reason for getting into debt is to invest or “multiply” that money. That is what financial experts call leveraging. Recall the lever in your high school physics? Many have become millionaires that way, driven by better information, got legally or illegally. 

What of the government? Remember our individual behaviour find its way into government.  Is the government not formed by political parties - groups of individuals coming together for a common good?  Never mind that vested interests are often packaged as public interests. Political scientists are yet to come up with a better alternative to political parties, and not dictatorship. 

Let’s vet the reasons for government borrowing. Status is often a factor, surprisingly. Leaders want to leave a status symbol, a legacy often in concrete. Conspicuous consumption again ; a highway , a railway like SGR  , an office block , a monument , something we can remember and link to our leaders . And they borrow to do that. 

Debt is a necessity for government. It needs money to offer services; from salaries to development. And has no savings to draw down. Ever heard of budget surplus in Kenya?  Offering such services gives the government power and legitimacy. You can’t tell your children there is no money for food. 

Government rarely leverage. But it can get us tomorrow’s comfort today, borrow money to get facilities today such as roads and schools. That should be the key reason for borrowing. 

But let’s be blunt, the government can borrow money because it’s “free” someone else will pay; the tax payers or the next government. Just like within individuals, behavior explains public debt.

92 per cent of revenues going to repaying debt means less money for services or projects. And we can feel it. The government stimulus effect reduces. Government projects create jobs and “awaken” the economy; remember Keynesian economics?

In silence, lenders are beneficiaries of debt; from shylocks to banks and bond or Treasury bill owners. Check the money pension funds and financial institutions have invested in government paper; lent to government.

What can the government do about debt?

It can divert our attention to make us forget our indebtedness and possibly borrow more. All the political drama we witness is not always spontaneous. 

Corruption and waste have not gotten the attention they deserve. How much of our debt goes into funding this dragon? Noted how corruption has been muted in public debates lately? 

We can borrow to pay debt and not always at a better price (interest rate). Sounds familiar? 

We can live within our means; not when 2027 is another ghost. But wait a minute; one of the biggest public costs is wages and salaries. Try laying off government employees and see the political backlash. They are less than one million, but they punch beyond their weight.

Is privatisation another alternative to raise funds and bridge the deficit? Remember securitisation? There is a limit to what we can privatise and voters are awake.

Defaulting would be a big blot on our reputation. May be negotiating new terms or getting a moratorium?

There could be other invisible measures like a stable currency which makes our debt payment more predictable. Remember the government is sirikali?

How about economic growth leading to more revenues, more taxes and more money for debt servicing. This is the best option. We need easy credit, and more optimism in the economy. Our entrepreneurs are suffering from helplessness. 

That is why I support a debt ceiling as a percentage of gross domestic product (GDP).  To incur more debts, you have to grow the economy. 

Let’s not forget that local debt is as bad as foreign debt. How many contractors and suppliers are owed money by national and county governments? Does 92 percent include local debts? Remember the pending bills? Paying such bills would be an economic stimulus. Let’s be fair; if the government owes you money, who can help you get it, beyond the political will? I hope the economic stimulation is enough convincing to pay the pending bills; they are affecting real lives. 

A fog of fear; echoes from Genz protests and focus on 2027 are not economic confidence building measures. How do we fund the broad based government? How do we show “results” as we head to 2027?  The government does not think like you and me. 

The reality is that we shall keep borrowing; and piercing the debt ceiling. Reality and politics demand that.  Doubting that? Give me an alternative to borrowing that is politically palatable. This is not my last article on debt.