Effect of Interest Payments on External Debt on Economic Growth in Kenya

Authors

  • Sammy Kemboi Chepkilot University of Nairobi

Abstract

In Kenya, Interest on payment on external debt (% of exports of goods, services and primary income) has been on the increase since 2010 to 2015 while GDP growth experienced a slight decline from the year 2010 to 2015. There is concern among policymakers that the rapid increase in external debt in developing countries such as Kenya has the potential of eroding the country‘s sovereign rating, particularly if it is not supported by proportionate growth in the size of the economy. The purpose of this study was to investigate on the effect of interest payments on external debt on economic growth in Kenya. The study utilized secondary data for 25 years, that is, period 1991-2015 for GDP growth (annual %) and Interest payments on external debt (% of exports of goods, services and primary income). Data analysis was done using Eviews version 9 Software. A critical p value of 0.05 was used to determine whether the model was significant or not. The results on the analysis of the variance (ANOVA)-F statistics indicate that the model was statistically significant. This implies that interest payment on external debt is a good predictors of GDP growth. This was supported by an F statistic of 14.808 and the reported p value (0.0008) which was less than the conventional probability of 0.05 significance level. Regression of coefficient results shows GDP growth (annual %) and LOG Interest payment on external debt (% of exports of goods, services and primary income) are negatively and significantly related. Based on the findings above, the study concluded that when the country decide to service Interest payment as a result of external debt, might disturb the economic growth of the country. Based on the findings and conclusion above, the study recommends for government that future plans should ensure to take external borrowings which its rate is not higher than the interest rate payment. Also for policy implication, the government should not let interests on payment to accrue so much that it can compromise the growth of the economy.

Keywords: Interest on payment, external debt, GDP growth, Kenya

Author Biography

Sammy Kemboi Chepkilot, University of Nairobi

Postgraduate Student, School of Economics

References

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Published

2020-01-20

How to Cite

Chepkilot, S. K. (2020). Effect of Interest Payments on External Debt on Economic Growth in Kenya. Journal of Economics, 3(1), 14–23. Retrieved from https://stratfordjournals.org/journals/index.php/journal-of-economics/article/view/411

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