Question: “You wrote that Kenya’s public debt stands at 68% of GDP and servicing that debt could have contributed to the government expanding taxes, leading to the protests. But that does not reconcile the fact that the United States’ public debt is more than 100% of the GDP. How do you reconcile that?”. This is the piece here.
Why are Kenyans protesting? Simple answer: the young people do not want more tax burdens. But why does the government plan to scale the burdens? Answer: “In the 2024/25 bill, the Kenyan government aims to raise $2.7 billion in additional taxes to reduce the budget deficit and state borrowing. Kenya’s public debt stands at 68% of GDP, higher than the 55% of GDP recommended by the World Bank and the International Monetary Fund.”
Ndubuisi: Kenya is not the United States. And the United States is not broadly raising taxes to service its debts. That said, how the US debts are configured is orthogonal to the ways sovereign debts in Africa are structured. In short, let me share what I posted a few days ago as my response:
“It is an anomaly: the nation with the largest debt is also the one that is seen as the most developed and richest. The US national debt … is about $34.75 Trillion.
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It is a real economic mystery when you think deeper: Nigeria does not even have a lot of debts, but it is “poor”, and experts will tell you not to over-borrow because it can put you in trouble, if you are unable to pay. So, how can a New Yorker who has thousands of dollars of debt on his head, better than an Ovim man who has no debt? That is where the mystery is solved! Yes, the magic of capital, over money, making the United States better and richer.
“First, some experts have modeled that the United States interest payment will hit $1.6 trillion by year end, making it the largest US Government outlay. In nearly every other nation in the world, that would be an economic apocalypse. But for the United States with the custodial of the dollar, the impact would be muted.
“Why? In an Igbo novel, Uwadiegwu, the author dropped a great hint: when you borrow, go to your kinsman so that if the debt goes bad, he may lock you up, but at the same time he would be expected to take care of your family since he is your kinsman! That is how debts work: pains are lesser when the debt is home. America borrows dollars and they’re responsible for printing dollars. No other country enjoys that combo.
“So, provided the US has those special printers, they can print US dollars, and if necessary, flood the world with dollars. [And] the US companies which hold these debts cannot wish for the US to have pains since if the US goes, companies like Blackrock, State Street, etc will fade. That is possible because these debts are all localized.
“Contrast with Nigeria. Nigeria has to earn US dollars to pay its US dollar-denominated debts, and the debts are not with Nigerian companies or entities. Magically, that burden pushes Nigeria to make decisions… ”
You can replace Nigeria there with Kenya; Kenya’s debts are not localized in shillings and that is part of the pressure. Of course, a real issue is not just the debts, but what they were used for?
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