Nipate
Forum => Kenya Discussion => Topic started by: Omollo on May 19, 2017, 02:03:30 PM
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No doubt you are aware that the National Debt is now 53% of the GDP. That is before the latest borrowing by Uhuru over the weekend is added.
So let me hear from you, since I believe you are one of those who do not think Uhuru is screwing up the country (if he has not already done so). What % of sustainable? At what point does the danger of default become a reality?
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(https://pbs.twimg.com/media/DADK1_zWsAAgMlj.jpg)
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While at it, explain to me why a shorter distance of the SGR will cost more than the longer portion.
(https://pbs.twimg.com/media/C_8QCMNVYAAz4hv.jpg)
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The risk is on achievability of returns which is not guaranteed. We nee to go slow on borrowing .
IMF and World Bank std for sustainable debt:
1. max 60% of GDP vs our 52.6%
2.1 external debt max 150% of exports vs our 368%
Or
2.2 external debt max 250% of revenues vs our 284%
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uhuru is on a spending spree without any accountability. There is no guaranteee of a return from the current system, so it will be prudent to keep planning.
The risk is on achievability of returns which is not guaranteed. We nee to go slow on borrowing .
IMF and World Bank std for sustainable debt:
1. max 60% of GDP vs our 52.6%
2.1 external debt max 150% of exports vs our 368%
Or
2.2 external debt max 250% of revenues vs our 284%
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BTW all things considered. Has there been any significant economic growth after the first SGR?
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BTW all things considered. Has there been any significant economic growth after the first SGR?
That depends where you refer to:
-China
-Kenya
-uhuruto bank accounts and those of cronies
-Average kenyans
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Kenya has had infrastructure deficit of about 20yrs so investment in infrastructure is prudent.The problem with this borrowing is the funds aren't ring fenced for specific projects. Also the local borrowing has ratcheted up, which has led banks to pile up on treasury bills instead of changing their business model to lend to private sector. Economic statistics show that government spending has increased, FDI has increased, the only problem is the private sector and household spending hasn't kept pace with rest of the economy. If we keep borrowing at around 50% and then ring fence funds to specific projects that will suffice. The biggest problem is how to get the private sector moving. In my humble opinion the keysian model has ran out of steam.
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Borrow lot more esp from China and invest lot more in infrastructure
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HK
You are not the first to declare Keynesian Economics dead. The Americans led the charge throughout the 70s to the 90s until their Great Economic Crisis of 2007 when they had to dust up the theory. I think the constant declaration of the death of Keynesian Economics has become a cliche rapidly ignored when the same pall bearers realize the coffin is empty.
My question was what percentage of GDP is sustainable. At what point is the danger of default highest. I expected you to draw from historical examples elsewhere. I think both you and Pundit have deliberately avoided answering the question because you know the truth to be unsavory - especially when Jubilee is telling Kenyans how well it has succeeded and so on.
Here is a brief extract from "Argentina’s Debt Crisis", by Victor A. Beker:
2.3 Country’s Solvency and the Argentine Case Although no simple rule can help determine when foreign debt accumulation is
sustainable or not, a number of criteria can be used in assessing the sustainability of the foreign debt of a country. The issue is summarized in Roubini (2001, 3–4).
The analytical literature on current account and foreign debt sustainability provides a theoretical criterion that is not particularly stringent. As long as the discounted value of trade balances is at least equal to its initial foreign debt, the country is solvent; this means only that the country cannot increase its foreign debt faster than the real interest rate on this debt.
Therefore, any path of the current account such that the infinite sum of all current accounts is equal to the initial foreign debt of the country is consistent with solvency. This means, for instance, that if the real interest rate is greater than the rate of the growth of an economy, solvency is consistent even with a foreign debt to-GDP ratio that grows continuously over time. A similar criterion applies in determining whether the public debt of a government is sustainable or not. Specifically, as long as the discounted value of primary
balances is at least equal to the initial public debt, the public sector is solvent. However, the dynamics of the current account that lead to an increase without bounds of the foreign debt-to-GDP ratio can be seen as effectively unsustainable: financial markets will eventually become concerned about the country’s ability and willingness to repay its debt and will limit its borrowing, leading to a foreign debt crisis. The same things apply for the case of domestic debt. That is why a non increasing foreign debt-to-GDP ratio has been seen as a practical sufficient condition for sustainability: a country is likely to remain solvent as long as the ratio is not growing.
Similarly, public debt can be viewed as sustainable as long as the public debt-to-GDP ratio is nonincreasing. The “resource
balance gap” is thus the difference between the current trade balance and the trade surplus required to stabilize the debt-to-GDP ratio.
In the same way, the fiscal “primary gap” is the difference between the fiscal primary balance and the primary balance required to stabilize the debt-to-GDP ratio. This criterion provides a normative rule: how much a trade surplus or primary surplus is required to close the resource or primary gap. However, it does not directly provide a tool to assess whether a certain stock of debt is sustainable or not.
Several alternative indicators of fiscal and external debt sustainability can be used to assess insolvency. Three of the most commonly used are the debt-to-GDP ratio, the debt-to-export ratio, and the debt-to-government revenue ratio. The relevant denominator depends on the constraints that are most binding in an individual country, with GDP capturing overall resource constraints, exports those on foreign exchange, and revenues those on the government’s ability to generate fiscal resources. In general, it is useful to monitor external debt in relation to GDP and export earnings and public debt in relation to GDP and fiscal revenues. In this respect, the analysis by IMF staff for low-income countries yields a threshold value for the external debt-to-GDP ratio of around 43 %, for the external debt-to-export ratio of around 192 %, and 288 % for the debt-to-revenue ratio (IMF and IDA 2004, 57). Based on the criterion of the external debt-to-GDP ratio, Argentina crossed the threshold in 1998 (Table 2.2). However, the GDP calculation was biased upward by the overvaluation of the peso, so entrance into the “danger area” might have happened a couple of years before. Concerning the external debt-to-export ratio, Argentina had in 2001 a ratio of 561 %, well above the threshold value, although the same happened with all the values of this series in the 1990s (Table 2.3).
Finally, the debt-to-government revenue ratio was 220 % in 2001, below the threshold value for this coefficient. Therefore, the coefficients themselves do not explain why Argentina defaulted in 2001. If the relevant coefficient was the debt-to-export ratio, Argentina was already a potential defaulter in 1991. However, it managed to borrow almost $80 billion during the following 10 years, more than doubling its external debt.
(http://omollosview.com/wp-content/uploads/2017/05/Debt-GDP-Ratio-Argentina.jpg)(http://omollosview.com/wp-content/uploads/2017/05/Debt-Export_Ration_Argentina.jpg)
Perhaps the most important issue at the time of default was the high share of short-term external debt. In fact, for both 2002 and 2003, the repayment of principal exceeded 80 % of the exports. Adding interest payments of about $12 billion, total debt servicing largely exceeded annual exports.
Argentina depended on creditors’ willingness to roll over its external debt. This became increasingly difficult since capital flows to Argentina quickly decelerated after the 1998 Russian crisis.
By mid-2001, the economic authorities initiated a process to improve the maturities by extending them. A $30 billion government debt swap took place in June. The government thought this transaction would offer financial relief in terms of the repayment of principal and interest payments of around $4.5 billion annually.
However, this was carried out at the price of accepting an implicit interest rate of 15 %, 4 which was interpreted by creditors as announcing a high probability of default. After that, the failure of a Treasury bill auction confirmed that the Argentine government had lost access to credit. Default was then inevitable.
Argentina had been continuously issuing new bonds to cancel most of the principal and interests of the debt that were becoming due. Only when default was imminent did creditors refuse to go on playing this game. Even then—in September 2001—the IMF approved one last significant tranche of financing for Argentina.
In the analysis of its role in the Argentine crisis, the IMF (2003, 72) poses the dilemma its authorities faced at that time: even after realizing the high probabilities of failure, it went on supporting the Argentine economic program in light of the high and immediate costs of withdrawing support. This reflects the path dependency existing in decision-making: once you make a considerable wrong bet, you are doomed to increase it in order to try to save your initial investment.
In the context of political instability—the governing coalition was undergoing a political crisis since the resignation by the vice-president in October 2000—Argentina finally defaulted at the end of 2001 after the then president resigned from his job
Kenya has had infrastructure deficit of about 20yrs so investment in infrastructure is prudent.The problem with this borrowing is the funds aren't ring fenced for specific projects. Also the local borrowing has ratcheted up, which has led banks to pile up on treasury bills instead of changing their business model to lend to private sector. Economic statistics show that government spending has increased, FDI has increased, the only problem is the private sector and household spending hasn't kept pace with rest of the economy. If we keep borrowing at around 50% and then ring fence funds to specific projects that will suffice. The biggest problem is how to get the private sector moving. In my humble opinion the keysian model has ran out of steam.
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Borrow lot more esp from China and invest lot more in infrastructure
Does that mean because we borrow from China, we will not repay?
Could you name some of the projects financed by the Eurobond? Kibaki borrowed 20 Billion and put up the Thika road and revamped the road network in Nairobi. What did 176 Billion do?
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Chinese loans are best out there bar condition laden wb and IMF .we need to take advantage of them.plus take advantage of Chinese contractors ability to execute projects on time n budget.thika road in mchezo...we need serious stuff like sgr,lapset,galana 1m acres.
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The ability to borrow so much and pay so little has not always been there...we are lucky to live in this China era.Take full advantage.
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Chinese loans are best out there bar condition laden wb and IMF .we need to take advantage of them.plus take advantage of Chinese contractors ability to execute projects on time n budget.thika road in mchezo...we need serious stuff like sgr,lapset,galana 1m acres.
- what are the conditions of the Chinese loans?
- Do the conditions include repayment?
- When you say "better" what comparison have you undertaken? Would you like to share?
I also assume that you know most of the loans taken by Uhuru are not for the two institutions that you mock.
I want to believe you that Thika road is child's play. After all only 20 billion shillings were used on it. Now show me what 176 Billions were used on? I expect something enormous. May be an 8 lane road from Mombasa to Kampala
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Chinese loans are best out there bar condition laden wb and IMF .we need to take advantage of them.plus take advantage of Chinese contractors ability to execute projects on time n budget.thika road in mchezo...we need serious stuff like sgr,lapset,galana 1m acres.
Yes I agree. Chinese loans are sub prime loans. This means you borrow a loan meant for a specific task but you use it for something else. These loans are easy to get but since the lender doesn't follow up you can do anything with it. If the money doesn't generate income the borrower goes into distress when the lender comes knocking.
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Not true.China loans are ring fenced and executed by Chinese themselves. Beside why worry about China the lender.Africa has huge opportunity here.We got Sgr in 3yrs..that huge
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Not true.China loans are ring fenced and executed by Chinese themselves. Beside why worry about China the lender.Africa has huge opportunity here.We got Sgr in 3yrs..that huge
So what percentage is sustainable? I am hoping you have now had time to digest your figures as usual and can share
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All Chinese loans are sustainable. Chinese to the maths before sending their contractors down here.
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All Chinese loans are sustainable. Chinese to the maths before sending their contractors down here.
So as long as we borrow from China, that can be kept off the books and all will be well.
The problem is that the "good" Chinese loans get added up to the books anyway and that raises the ratio high any way.
As in the Argentina case or the ongoing Venezuela saga, once a country defaults the effects are the same regardless of which loans are "good". Venezuela may get a pass and avoid punitive interests from China (not that it is confirmed) but the other creditors have reacted anyway. I doubt that those who lent us the Eurobond will sleep easy knowing that we are unable to service the Chinese debt. And any way once you default it doesn't matter who is good or not, does it?
These debts are maturing soon.
Any way, I note that you are unable or unwilling to state what percentage is sustainable.
You can have mine: The moment they hit 40% it had gone too far.
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HK
You are not the first to declare Keynesian Economics dead. The Americans led the charge throughout the 70s to the 90s until their Great Economic Crisis of 2007 when they had to dust up the theory. I think the constant declaration of the death of Keynesian Economics has become a cliche rapidly ignored when the same pall bearers realize the coffin is empty.
My question was what percentage of GDP is sustainable. At what point is the danger of default highest. I expected you to draw from historical examples elsewhere. I think both you and Pundit have deliberately avoided answering the question because you know the truth to be unsavory - especially when Jubilee is telling Kenyans how well it has succeeded and so on.
I can very easily post a counter argument against keynesian. The point is the debt level isn't alarming and can even go up to 80% of GDP. The key aspect is access to credit market. The Eurobond for example can be very easily be rolled over, just like what the government rolls over treasury bills upon maturity. The key factor is keeping the fundamentals so that access to credit market is assured without raising the interest rates on debt. In the open market the Eurobond yield is trading at 5.87% lower than when it was issued.
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Thank you very much. You have said 80% is sustainable. In fact from the overall mood, tone and wording, it may well even go higher than that to well, infinite. It is a non issue, perhaps an irritant that stops Uhuru from borrowing, stealing most and using a little on "development projects", as he did said he did with the Eurobond.
I will revert back to you presently
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Thank you very much. You have said 80% is sustainable. In fact from the overall mood, tone and wording, it may well even go higher than that to well, infinite. It is a non issue, perhaps an irritant that stops Uhuru from borrowing, stealing most and using a little on "development projects", as he did said he did with the Eurobond.
I will revert back to you presently
There are two things; borrowing and use of the funds. Kenyans can borrow over 80% of GDP, the question is how are funds being utilized. And which projects are given a priority. What would be more appropriate would be to easy burden on households and private sector. Encourage more capital goods investment by private sector.
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There are two things; borrowing and use of the funds. Kenyans can borrow over 80% of GDP, the question is how are funds being utilized. And which projects are given a priority. What would be more appropriate would be to easy burden on households and private sector. Encourage more capital goods investment by private sector.
The Eurobond was "used on [unspecified] projects" - all 200 Billion of it.
Private sector again!
Kindly explain how to borrow and use it to "ease the burden on households" first then in detail educate me how the public should borrow money so that it can ease the burden of the private sector. I know how certain fee market oriented economists think the worst thing that ever occurred since Karl Marx was born is the increased status of the Public Sector. So I do not understand why the bad guy has to help the eternal good guy.
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Private sector again!
Kindly explain how to borrow and use it to "ease the burden on households" first then in detail educate me how the public should borrow money so that it can ease the burden of the private sector. I know how certain fee market oriented economists think the worst thing that ever occurred since Karl Marx was born is the increased status of the Public Sector. So I do not understand why the bad guy has to help the eternal good guy.
Government can lower taxes and to plug the temporary funding deficit, borrow as the lower taxes kicks in. Lower taxes result in collection of more taxes over time. Case in point is when kra lowered rent income taxation from 33% of net income to a flat fee of 10% gross. This roped in more landlords and kra is collecting more than double from landlords.
If the PAYE taxation was removed for salaries lower than 30k this would increase the buying power of a lot of people . And the highest taxation of 33% to charged to incomes of 500k and above. Vat to be lowered to 10% this would lower cost of goods increasing consumption. Zero rating of capitals goods and depreciation expense tax would lead to companies buying machines and equipment to boost productivity. Further turbo charging the economy.