GDP-indexed Bond And Budget Financing Options In Kenya

Abstract

This study analyses some selected factors that could influence the adoption of Gross Domestic Product (GDP)-indexed bonds to finance budget deficits in Kenya. Its specific objectives are to examine how the openness of the economy, capital market development, government credibility and volatility of returns could influence the use of GDP-Indexed Bonds to finance budget deficit in Kenya. It adopted the explanatory research design with utilization of secondary data sources. Descriptive statistics such as means, percentages, and frequencies; and inferential statistics such as Pearson correlation and regression analysis were used to analyze the data. The findings show that openness of the economy, government credibility, capital markets development and volatility of returns had significant and positive relationships with the feasibility of GDP-Indexed Bonds to finance budget deficits. The study concluded that, ensuring openness of the economy, development of capital markets, credibility of the government as well as the predictability and steadiness of stocks returns could enhance the adoption of GDP-Indexed bonds to finance budget deficits in Kenya. It was recommendations government should focus on strategies to curb corruption, ensure stable fiscal rules, openness of the economy, as well as checking market shocks to enhance stable economy.