Kenyas Debt Crisis and Public Investment

With perennial fiscal deficits, Kenya resorted to borrowing to bridge the budgetary gap. For the last one decade, there has been a steady increase in the debt which now stood at Kshs 6.28 trillion in March 2020. However, literature is scanty on the relationship between public debts and public investment in Kenya. This study therefore, employees Autoregressive Distributed Lag Model to investigate the effect of Kenya’s public debt on public investment. Secondary data covering 1980-2019 was utilized. The study finds that domestic debt, debt service and inflation, have adverse effect on public investment in the short run but, in the long run, these variables improve public investment except for debt service. In addition, the effect of external debt on public investment, moves from positive to negative in the short and long-run respectively. It was recommended that Kenya should seek to restructure its external debts to free up some financial resources and enhance investment in productive public sectors as a mitigation measure.