External Debt In Kenya Essay

EFFECTS OF EXTERNAL DEBT ON ECONOMIC GROWTH IN DEVELOPING COUNTRIES, CASE STUDY KENYA.

ABSTRACT

Low –income countries categorized as HIPCs have continuously experienced difficulties in servicing and managing their external debt. Kenya, together with some Sub-Saharan Africa countries are among the HIPCs. Kenya’s development and initiatives to ensure debt sustainability have had a drawback as a result of the rising debt burden and the high level of external indebtedness. The hope of these loans was to put the country on a faster development path through rapid investment and faster growth. But

The GDP grew at an average of 6.5 per cent and per capita income remained positive despite high population growth rates. The debt servicing ratio (debt service payments as a ratio of total exports of goods and services) in the early 1970s was a way too low to cause concern when compared with that of African countries as a whole which was over 10 per cent in 1972 as shown in Table 1. The balance of payments (BOP) was severely affected in 1973 as a result of the oil crisis forcing the government to embark on heavy external borrowing so as to meet the BOP. The external debt grew by 45.3 per cent in1973 from the previous year (see Table

The second oil crisis followed soon causing a sharp deterioration in world commodity markets. Since the Kenya’s export earnings almost became stagnant, the debt- servicing ratio began to rise. This was accompanied by an increasing debt to GNP ratio as seen from Table 1. Drought conditions in the 1980s led to food imports, made possible by the availability of external loan finance. Increased interest rates on international loans raised the debt service charges substantially. This led to a decrease in net transfers on debt, being negative in 1981, 1984, and 1986 and have remained negative since 1991 (see Table