Why we can’t print the money needed to pay govt loans

By MUNGAI KIHANYA

The Sunday Nation

Nairobi,

07 March 2021

There is no doubt about this: financially our nation is in dire straits. In the coming financial year, we expect to raise about Sh1,600 billion through taxes levies and fees. That is, Sh1.6 trillion. It sounds like a lot of money until one looks at how it will be spent.

First off will be installment payments for loans. These are estimate to be about Sh600 billion during the year. That leaves Sh1 trillion for other expenses.

In my view, the most important sector that should always take top priority is education. We have about 300,000 teachers in the public schools and colleges and their salaries come to about Sh250B per year.

The free education programme takes another Sh50B – about Sh15B to the primary and Sh35B to the secondary schools. On top of that, universities take Sh100 billion for paying lecturers and meeting other running expenses.

So far, the education sector alone has taken a total of Sh400 billion. This leaves Sh600 billion to cater for all other government expenses – pay the police, the army, and all other civil servants and also carry out development projects. Is that money (Sh600B) enough?

Of course not! So, the government will have to borrow even more money to meet its financial commitments. This additional borrowing will increase the loan instalment amounts in the subsequent financial year.

Recently, someone asked on the internet social media why we can’t simply print the money needed to pay the loans. There are two reasons: first is that about half of the loans came from foreigners in dollars and we don’t have a machine for printing dollars!

Secondly, it’s not easy to print money. The total value of all the currency notes and coins in circulation in Kenya currently stands at about Sh290B. That is, the Sh600B required for the loans is twice as much as all the printed money in Kenya!

This brings up a perplexing question: if all the notes and coins are worth Sh290B, where will the Sh1,600B in taxes come from? After all, the maximum tax rate is 30 per cent, meaning that the income generated will be at least Sh5 trillion – in a nation that has just Sh290B circulating.

This might shed some light: in my entire working life of 30 years, I have only been paid in bank notes in two instances only. The rest of the time, payments came in cheques and direct bank transfers.