International Journal of Business and Social Science

ISSN 2219-1933 (Print), 2219-6021 (Online) DOI: 10.30845/ijbss

External Public Debt Servicing and Economic Growth in Kenya: 1970 - 2003: An Empirical Analysis
Justus Kalii Makau

A group of low-income countries in Sub Saharan Africa (SSA), including Kenya, have continued to experience difficulties in managing and servicing their huge stocks of external debt. The relatively high level of Kenya’s external indebtedness, rising debt burden and inability to source sufficient external finance at favorable terms and conditions has serious implications on the country’s economic performance. This paper examines the relationship between Kenya’s external indebtness, debt service and economic growth. The paper found out that: (a) there is a negative relationship between the GDP growth rate and external debt servicing where a one percentage-point increase in the external debt service would, on average, translate to a 0.5626 percentage point decrease in the GDP growth, ceteris paribus; (b) Savings to GDP ratio had a positive effect on GDP growth rate. One percent rise in domestic savings leads to 0.5230 percent rise in the GDP growth rate (c) There was a negative effect of external debt on the GDP growth rate where a 1 percentage point increase in the external debt stock would translate to a 0.0822 percentage point decrease in GDP growth, ceteris paribus. The study concluded that removing the external debt constraint would not only be good for growth, but also would make resources available which would foster economic growth. Policy makers should therefore consider coming up with sound debt management policies that will ensure that all financial inflows in the country in the form of debt or aid is effectively and productively utilized.

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