Relationship Between External Debt And Economic Growth Of Kenya

Abstract

External debt is crucial for national development as it uses resources to redress budget deficits, implement infrastructure development, and accelerate long-term and long-term economic growth. Kenya's economic growth has slowed for years. This is due to the depreciation of public finance projects using external debt. The purpose of this study was to determine the impact of external debt on Kenya's economic growth. Thus, the study evaluated the relationship between external debt and economic growth in Kenya in terms of Multilateral debts, Bilateral debts and debt servicing in Kenya. Specifically, the study examined the relationship between multilateral debt, bilateral debt and debt servicing on economic growth in Kenya. The study was based on Keynesian model, debt overhang theory and Buchannan theory. Correlation research design was adopted. The study was based on a research program that described and used secondary data from the National Treasury and the World Bank for the 45 years from 1988 to 2019. Descriptive statistics, multiple regression and time series analysis were used to analyse the data. Analyzed data are presented using tables, figures and diagrams. The study found that multilateral debt had an inverse relationship on the country’s economic growth with statistically significant results. Bilateral debt and debt servicing have positive and not significant relationship with economic growth. It can be concluded that the fact that bilateral debt is under the management of the national government increases prudence in its usage due to the transparency and monitoring by the tax payers who push for effective and effective use. The negative relationship between debt servicing can be well explained from the detrimental effect in the local commercial sector as a result of the fiscal actions. The government should collaborate and work closely with the multilateral organizations while at the same time providing conducive environment so that they can be able to deliver on the development agenda which will on the long run increase the economic growth of the country.