As of 2016, Kenyan Government Debt equivalent to Gross Domestic Product was 55.20% from 38.2% in 2012, representing a steady increase of 17% since 2012. The debt-to-GDP ratio is the debt (amount) of the government of a country and its Product (years), with 60% being the accepted barometer (standard EU criterion), which means that public debt should not exceed 60%. Lead us to believe that the Kenyan government’s debt ratio is somehow sustainable, but the steady increase throughout the year means that we are on track to surpass the 60% mark.

But what has caused the Ratio to rise steadily over the years, from 38.2% (2012) to 55.2% (2016), what underlying factors have contributed to the increase in the Overtime Ratio, has deliberately encouraged the Government the constant increase of the Proportion, has there been a positive or negative impact on the economy? Can the Government manage uncontrolled public debt? Can Unlimited Total Monetary Sovereignty Help Control Uncontrolled Public Debt?

What is the public debt? According to Wikipedia, Public Debt is how much a country owes to external lenders to itself, which can be classified as internal debt (owed to lenders within a country) and external debt (owed to foreign lenders), or in terms of duration; Short (1 to 2 years), medium (between long and short) or long term (10 years or more).

In September 2016, our public debt was Ksh 3.6 trillion compared to Ksh 1.5 trillion (2012), of which the external debt was Ksh 1.7 trillion and the internal debt was Ksh 1.85 trillion (Central Bank of Kenya). That is, for every Ksh 100 collected by the Kenya Revenue Authority, Ksh 32 was spent on servicing its debts.

As the National Budget increases annually and KRA falls short of its revenue-raising target, we face budget deficits, forcing the Government to borrow funds either externally or internally. Perpetuate a vicious circle where the only result is the constant increase in our National Debt.

If we compare our debt / GDP ratio with other countries, for example; Japan- 250.40% (2016), US-106% (2016) and UK- 89.3% (2016), we assume that our Debt to GDP ratio is lower, therefore sustainable and on the correct path, but in contrast the rate is, it will become unsustainable and will probably go in the opposite direction according to the World Bank and the IMF. So why do countries with a higher debt-to-GDP ratio than ours have sustainable national debt? What mechanisms do you use to manage your Public Debt? Can our Government with its limited options use those mechanisms, instead of the heavy taxes and loans, with their past effects on us?

Unlimited monetary sovereignty shows how countries like Japan, the US, and the UK can sustain their national debt. Monetarily Sovereign Government means; they have the exclusive and unlimited power or ability to create their own sovereign currency, that is, they have total and absolute control over their sovereign currency.

Which means that these governments can do whatever they want with their own currency, that is, they can match their currency to any unit or amount (1 USD = 10 euros or 1 USD = 5 ounces of gold), as creators of their own currency. They are fully owned, so you have other reliable options besides taxing or borrowing, or being forced to file for bankruptcy, and you can pay any bill of any size, at any time.

On the contrary, sovereign non-monetary nations, such as those of the EU, have renounced their exclusive and unlimited power to create their own currency and therefore use a single currency; the euro. Limited to creating euros, the ability of these states to create or obtain money is tied to existing laws governing loans and taxes.

Kenya is a sovereign monetary country, but does it have unlimited power or control over its own currency? Can it be used to settle debts or payments to another country? Can it stand on its own without the backing of another currency or commodity? like gold.

Despite being a sovereign monetary nation, Kenya has limited control over its own currency; it creates problems and controls its circulation in the country, and accepts the payment of taxes and other obligations. But it will be difficult or impossible to pay to other countries using Ksh. instead, a generally acceptable currency such as USD will be used for payment.

Our currency is backed by other Currencies such as USD, Pound Sterling, Euros or Commodities such as Gold where the Central Bank has created Reserves for said currencies to fulfill the obligation of the Country in the payment of external debts and for Imports.

Therefore, equating our currency as the US, Japan, where they have the freedom to print more money to meet their obligations and use it to pay off external debts, is impossible. We have no choice but to find other ways to raise money, such as raising taxes, borrowing (internally or externally), selling government bonds, etc.

If the Government can create good fiscal policies, reduce or eliminate institutional corruption, promote local industries, maintain a favorable position in the balance of payments, reduce recurring expenses, create employment opportunities and participate in development projects. Then we can maintain a favorable debt / GDP ratio and sustain our public debt without necessarily overburdening citizens with taxes.