PUBLIC DEBT AND FOREIGN DIRECT INVESTMENT IN KENYA
Ouma Carolyne Awuor - School of Business and Economics, South Eastern Kenya University, Kenya
Duncan Kashu - School of Business and Economics, South Eastern Kenya University, Kenya
Muiruri Joseph Kamande - School of Business and Economics, South Eastern Kenya University, Kenya
Mutua Kilonzo - School of Business and Economics, South Eastern Kenya University, Kenya
Waithira Ruth - School of Business and Economics, South Eastern Kenya University, Kenya
Abednego Musau - Lecturer, South Eastern Kenya University, Kenya
ABSTRACT
Restoration of economic wellbeing is one of the key efforts governments are undertaking in post-COVID era. This is due to the fact that, economies have experienced an increase in debt levels which affect their interactions in the world economy. Many of world economies have entered into recession and others experienced a devaluation of currencies even as debt levels skyrocket. Kenya has experienced an increase in debt levels increasing beyond the World Bank standard coupled with a decline in Foreign Direct Investment (FDI) levels as multinational companies scale down investments and others exit the markets all together. The big question is therefore, is the increase in debt levels a contributor to declining FDIs? This study focused on the analysis of the effect of public debt on foreign direct investment inflows in Kenya. The main purpose of the study was to determine the Impact of public debt on Foreign Direct Investments and the specific objectives included to analyze the effect of Gross financial liabilities on Foreign Direct Investment inflows in Kenya, to determine the effect of public debt to GDP ratio on Foreign Direct Investment, to analyze Interest Rate on Foreign Direct Investment and to determine the effect of debt budgetary revenue on Foreign Direct Investments. Secondary sources of data were sourced from reports by the World Bank, IMF, UNCTAD, Kenya National Bureau of Statistics, CBK, and National Treasury. Our study used the descriptive study design since we sought to elaborate the relationship between public debt and Foreign Direct Investment inflows in Kenya. Multiple regression analysis on available data found out that all the independent variables (Gross Financial Liabilities, Public Debt to GDP Ratio, Interest Rate and Debt Budgetary Revenue) were statistically insignificant. The R-Square value was 0.401 meaning that only 40.1% variation in FDI inflows in Kenya can be determined by public debt while the other part is determined by factors not covered in this research. The findings also indicated a high R of 0.633 indicating that public debt has a high correlation to FDIs. An individual analysis of each variable found out that Public Debt to GDP Ratio and Interest Rate had a positive correlation with Foreign Direct Investment while Gross Financial Liabilities and Debt Budgetary Revenue had a negative correlation. The study therefore recommends that the government should develop and execute policies to regulate the Gross Financial Liabilities in order to encourage inflows of FDI and also reduce deficit budgeting (expenditure exceeds revenue) which leads to excessive borrowing and this in turn discourages inflow of FDI.