This archive report was first published on 14 October 2019.
On October 14, 2019, the National Treasury expressed its support for the raising of the debt limit by Parliament to Sh9.1 trillion.
However, critics immediately jumped on the announcement, attacking it for allowing the government to continue borrowing from foreign banks and governments.
While these are important issues to be concerned about as a responsible citizen, the issue needs to be unpacked and better understood.
Kenya, which has a market-based economy with less powerful State enterprises, is generally classified as a low-income economy on the cusp of becoming middle income.
According to the World Bank, the economy is set to grow by about six per cent in 2020, a normal growth rate for a low-income country.
However, economic growth is not the natural outcome of any low-income country; it is the product of the leadership's hard work, healthy regulation, and prudent financial stewardship.
Acting Treasury Cabinet Secretary Ukur Yattani explained the move to journalists recently, stating that the goal of raising the debt limit is to get rid of a requirement that public debt not exceed half of the GDP.
As it is, the government comfortably meets its debt obligations, and the debt-to-GDP comparison is heavily criticised by economists, including the Institute of Economic Affairs (IEA).
A better measurement is the debt-to-service ratio, checking whether the economy can repay it based on how much it has serviced over a period.
As of June, national debt was at Sh5.89 trillion, which is 60 per cent of GDP, and the World Bank and IMF posit that debt ceases to be unsustainable if it reaches the 74 per cent mark, and we are well under that.
