Assessing The Efficacy and Sustainability of External Borrowing for Kenya’s Economic Development: 2003 – 2017

This study has established that Kenya has been borrowing money unilaterally, multinational, and from global financial institutions such as the International Monetary Fund and the World Bank. This has been the case because after gaining independence the country has always envisioned a future where the earning and purchasing power parity of the population is reasonable enough to maintain a high velocity of money and a near full employment status. Part of the vision also includes developing the country’s industrial sector so that it is the main driver of the economy and not the agricultural sector. Government economists, with respect to Rostow’s Economic Growth Theory and have advised the government that an agricultural economy will never help Kenyans see vision 2030. As such the government needs to effect a paradigm shift so that Kenya changes from an agricultural to an industrial economy. Every time Kenya borrows funds for development the goal is usually to realize the multiplier effect where there is an increase in final income of citizens and the GDP at large because of new injections of government expenditure. The challenge is that misappropriation of borrowed funds impairs the rate of employment and household’s marginal decisions to spend and save, known as the marginal propensity to consume (mpc) and the marginal propensity to save (mps). The entirety of this thesis will give valuable insights with respect to what Kenya’s debt status is, the trends in external borrowing, the outcomes of externally borrowed funds with regards to Kenya’s economic growth and the factors that influence Kenya’s external borrowing with regards to political structures. Economic schools of thought such as the Debt Overhang Theory, Rostow’s Theory of Economic Growth, and Buchanan Theory will be used to interpret Kenya’s debt which requires the country to expend more than 50% of its GDP earnings to service it.