Impact of public debt on economic growth: case study - Kenya

Abstract

There is an urgent need for policymakers in governments, central banks, and international policy organizations to understand the effects of public debt on economic growth extensively. The government should further understand the appropriate mix of domestic and external debt as well as be informed of the level to which they can borrow without negatively affecting economic growth both directly and indirectly. Secondly, the fear of investors interpreting high public debt-to-GOP ratios as the result of time inconsistencies or inflationary policies should lead governments to implement immediate and severe austerity measures on and adopt fiscal measures as well as alterative to ensure public debt sustainability. Additionally, high burden in debt servicing affects investments as it potentially crowds out private investments Lastly, studying a specific country enables the study considers country specific fundamentals hence more conclusive results as compared to regional analysis. Similarly, the study aims to fill the gap of limited literature on the impact of domestic debt on economic growth while concurrently examining external debt. Finally, using a wider range of data will enable the study build on existing literature.