Theses and Dissertations

EFFECT OF MACROECONOMIC DETERMINANTS ON COUNTY GOVERNMENTS’ INDEBTEDNESS POST-COVID-19 PERIOD IN KENYA

Wed, 01 Jan 2025 00:00:00 GMT

EFFECT OF MACROECONOMIC DETERMINANTS ON COUNTY GOVERNMENTS’ INDEBTEDNESS POST-COVID-19 PERIOD IN KENYA KIPROP, RUTH JEPCHIRCHIR The indebtedness of county governments in Kenya played a critical role in shaping post- pandemic economic stability and development, influenced by several macroeconomic factors. While borrowing helped sustain county operations and resilience during the COVID-19 period, it also amplified fiscal vulnerabilities, including declining tax revenue, rising corruption levels, and increased reliance on credit. Many counties entered a debt cycle exacerbated by high-interest loan borrowing. Between 2020 and 2023, county government expenditures surged to 28% of GDP, rising further to approximately 32.1% by the 2023/2024 financial year. Simultaneously, corruption levels, measured by the average size of bribes paid to access public services, increased from Ksh 4,600 in 2019 to Ksh 7,800 in 2021 and remained high at Ksh 7,300 through 2023. This persistent rise in corruption undermined public trust, inflated the cost-of-service delivery, and likely escalated borrowing as counties struggled to fill widening fiscal gaps. In the same period, county own-source revenues, measured as a percentage of total revenue, declined, with many counties reporting shortfalls. As of the first half of the 2023/2024 fiscal year, county governments had accumulated pending bills totalling Ksh 156.34 billion. The study’s overall objective is to examine the effect of macroeconomic determinants on county governments’ indebtedness in post-COVID-19 Kenya, focusing on economic growth, tax revenue, government expenditure, and corruption levels. Anchored on the Keynesian Consumption Theory and Debt Accumulation Theory, the study employed a descriptive and explanatory research design using panel secondary data from 47 counties for 2020/2021 to 2023/2024. Analysis involved descriptive statistics, Pearson correlation, and panel regression .The descriptive statistics indicated that, on average, GDP growth stood at 3.4%, tax revenue at 17.2%, county governments’ expenditure at Ksh 53.9 billion, corruption levels at Ksh 23,500, and county governments’ indebtedness at Ksh 2.18 billion between 2020 and 2024. Pearson correlation analysis revealed that county debt was positively associated with GDP growth (r = 0.492), tax revenue (r = 0.427), government expenditure (r = 0.668), and corruption (r = 0.354). To determine the appropriate model, the Breusch–Pagan Lagrange Multiplier (LM) test was conducted, which rejected the null hypothesis that Pooled OLS is sufficient (LM = 27.386, p < 0.001), suggesting that panel data models RE was more suitable. The F-test for Fixed Effects also rejected the null hypothesis that all county-specific intercepts are equal (F = 12.45, df = 46,138, p < 0.05), confirming the presence of significant county-specific effects and the inadequacy of the Pooled OLS model. The Hausman Specification Test (H = 11.752, df = 4, p = 0.05) rejected the null hypothesis, indicating that county-specific effects were correlated with the regressors. This led to the selection of the Fixed Effects (FE) model as the preferred specification. The Fixed Effects model revealed that government expenditure (β = 0.1724, p < 0.01) and corruption (β = 0.2611, p < 0.05) had positive significant effects, tax revenue had a positive significant effect (β = 0.2982, p < 0.05), and GDP growth was statistically insignificant (β = -0.0284, p = 0.05). The study concludes that excessive spending and corruption are the main drivers of post-COVID-19 county indebtedness. It recommends enhancing fiscal discipline, enforcing strict expenditure controls, strengthening anti-corruption measures, and improving own-source revenue mobilization to reduce debt reliance and ensure sustainable county financing.

EFFECT OF PUBLIC DEBT, EXPORT TO GDP RATIO AND GOVERNMENT EXPENDITURE ON ECONOMIC GROWTH IN KENYA

Wed, 01 Jan 2025 00:00:00 GMT

EFFECT OF PUBLIC DEBT, EXPORT TO GDP RATIO AND GOVERNMENT EXPENDITURE ON ECONOMIC GROWTH IN KENYA CHEWOREI, PETER PTENGWER An investigation into the growth of GDP and public debt in Kenya shows that during the period 1963 to 2008, the economy experienced cyclical booms and depressions with the economic booms in mid 1970s, late 1980s, and early 2000s, as well as global economic depressions in early 1980s, early 1990s and in 2008. As a result, the Kenyan government turned to external and domestic borrowing during these periods to plug the budget deficits, which has contributed immensely on the country negatively and this has led to high dependency ratio as compared to the previous years. The study sought to assess the effect of domestic borrowing, external borrowing, export to GDP ratio as well as government expenditure on economic growth in Kenya. The study was anchored on the Keynesian theory of economic growth and the dynamic theory of public spending to establish the effect of public debt on Kenya’s economic growth by conducting longitudinal research design on quarterly secondary time series data from the treasury for the period 1988-2018. The study employed the autoregressive distributed lag (ARDL) regression model to carry out analysis using STATA version 15 software at five percent significance level. The study found that there exists a significant inverse short-term relationship between economic growth and domestic debt where one percent increase in domestic debt causes 1.25 percent decline in Kenya's economic growth (β =1.25342, p < 0.05). The findings of the study shows that one percent increase in external debt causes 1.10 percent decline in economic growth in Kenya (β =1.09536, p < 0.05), and 1.745 positive relationship between export to GDP ratio and economic growth in Kenya (β =1.74536, p < 0.05) whereas government expenditure has a significant short-run, positive relationship with economic growth in Kenya with a correlation coefficient of 1.4537 β =1.493762, p < 0.05. The study concluded that Kenya's economic growth is significantly correlated with all four explanatory variables. Based on the study findings, it was recommended that to ensure a steady economic growth in the country, both external and domestic debt stocks should be kept at manageable levels, while government expenditures remain sustainable.

EFFECT OF MACROECONOMIC VARIABLES ON PUBLIC HEALTH EXPENDITURE IN KENYA

Wed, 01 Jan 2025 00:00:00 GMT

EFFECT OF MACROECONOMIC VARIABLES ON PUBLIC HEALTH EXPENDITURE IN KENYA NYABOGA, CYNTHIA KWAMBOKA Health spending is a major concern in low- and middle-income countries because of the less finances allocated in the health sector. One of the main goals of the Kenyan government's "big four" development strategy, which is scheduled for completion by 2022 and was achieved in some few counties in 2023 is universal health care. Health has consistently been prioritized over time and has occupied a central position in political campaign platforms. The government has consistently spent huge amount of money into the health sector. In Kenya, majority of people depend on public insurance and only a very small portion of Kenyans can afford to have access to the private insurance and out of pocket payment, this has led to increased level of poverty and higher dependency ratio. Despite all these efforts, Kenya still has challenges in the allocation of public health expenditure. The purpose of this study was to ascertain how macroeconomic factors affected Kenya's public health spending. This study aimed to establish effects of GDP per capita, corruption, unemployment fiscal deficit and tax revenue on public health expenditure in Kenya. The key theoretical anchors of the study are Public Expenditure theory and Wagner’s theory. Explanatory research design was used. Secondary data from the Kenya National Bureau of statistics (KNBS) was used with annual time series data spanning from 1990 to 2023. The data was subjected to stationarity test using Augmented Dickey Fuller (ADF) test, Phillips and Perron (PP) and Kwiatkowski–Phillips–Schmidt– Shin (KPSS) for unit root test. The study employed Autoregressive Distributed Lag model (ARDL) to evaluate the relationship among the variables. The long run ARDL analysis revealed that the coefficients of; corruption -2.231 (p-value 0.002<0.05), per capita gross domestic product 0.001(p-value 0.02<0.05), tax revenue 0.075(p-value 0.025<0.05), and unemployment 0.227(p-value 0.03<0.05) significantly affected public health expenditure in Kenya. However, the fiscal deficit was found to be insignificant in the long run 0.008(p- value 0.914>0.05). To ensure prudent public health expenditure in Kenya, the study recommends strengthening anti-corruption laws, maintaining fiscal discipline through effective budgeting, promoting per-capita economic growth by boosting productivity and investments. Optimizing tax revenue through efficient policies and broadening the tax base is vital to fund public services. Addressing unemployment by creating jobs and investing in education is crucial for effective use of the labor force.

EFFECT OF MACROECONOMIC VARIABLES ON EXCHANGE RATE VOLATILITY IN KENYA

Wed, 01 Jan 2025 00:00:00 GMT

EFFECT OF MACROECONOMIC VARIABLES ON EXCHANGE RATE VOLATILITY IN KENYA KINUTHIA, JOSEPH NGIGI Foreign direct investment, government expenditure, public debt, inflation rate, interest rates, and money supply are essential macroeconomic variables that can alter currency volatility and its impact on the Kenyan economy. The exchange rate of the Kenyan shilling has exhibited significant volatility against major currencies such as the US dollar. In 2022, the KES depreciated by an average of 0.6% monthly. This trend intensified in early 2023, with average monthly depreciation rates reaching 4%, and some months witnessing increases of up to 6%. By October 2023, the exchange rate reached KES 148.4 per US dollar, up from KES 120.8 in early 2022, marking a 13% depreciation in 2023. In January and February 2024, the KES continued to weaken, exceeding KES 160 and 163.98 per US dollar, respectively. This sharp fluctuation in the Kenyan shilling highlights concerns about currency stability. The objective of this study was to examine the effect of foreign direct investment, government expenditure, public debt, inflation rates, interest rates, and money supply on exchange rate volatility in Kenya. The study was informed by the Purchasing Power Parity Theory, the General Equilibrium Theory of Exchange Rate Determination, the International Fisher Effect theory, and the Interest Rate Parity theory. The study used an explanatory research design, analysing annual secondary data from 1971 to 2024. Data was collected using a structured review matrix and tested for stationarity and cointegration before analysis using descriptive statistics and the ARDL model. Descriptive statistics results showed that the average FDI, government expenditure, and public debt were 0.71, 15.68% and 47.60% respectively. Interest rates, inflation rate, and money supply growth averaged 6.20%, 11.31% and 34.77%, respectively. Inferential results revealed that in the long run, a unit increase in foreign direct investment and government expenditure reduced exchange rate volatility by 36.4% and 341.5%, respectively, while inflation and money supply increased it by 55.2% and 239.7%, respectively. Short-run results showed that a 1% increase in FDI, money supply, and inflation rate increased volatility by 18.31%, 19.26%, and 111.83%, respectively, while government spending and public debt reduced volatility by 90.65% and 42.18%, respectively. To reduce or stabilise exchange rate volatility, the study recommended a combination of monetary policy interventions to policymakers. These included foreign exchange operations, interest rate adjustments, hedging strategies, and export diversification. Additionally, the central bank is advised to regulate the growth of the money supply to prevent excessive inflation and currency depreciation, which could exacerbate exchange rate fluctuations.

MACROECONOMIC EFFECTS OF FINANCIAL DEEPENING BETWEEN 1990 TO 2023 ON ECONOMIC GROWTH IN KENYA

Wed, 01 Jan 2025 00:00:00 GMT

MACROECONOMIC EFFECTS OF FINANCIAL DEEPENING BETWEEN 1990 TO 2023 ON ECONOMIC GROWTH IN KENYA MOREKA, MARTHA KERUBO Financial deepening has been found to stimulate economic growth by its capability to mobilize investments, thereby making financial resources readily available and, hence, raising efficiency. However, the reviewed empirical literature on the relationship between financial deepening and economic growth is not very clear in Kenya. The primary objective of the study is to examine the macroeconomic effect of financial deepening on economic growth in Kenya. The specific objectives are to determine the effect of credit to the private sector, stock market capitalization, commercial bank liquidity liabilities, broad money supply, and commercial bank deposits on the growth of the economy in Kenya. The study employed the following theories: the Endogenous Growth theory, the Neoclassical theory, Financial Liberalization Theory, Supply Leading theory. The study employed an explanatory research design and used secondary data from the World Bank and KNBS, with data spanning from 1990 to 2023. The data was subjected to stationarity and cointegration tests to test if the time series has stationary and long-run properties. Autoregressive Distributed Lag (ARDL) model estimation technique was used to achieve the research objectives. The ARDL regression results show that in the long run credit to the private sector 0.41(p-value 0.00<0.05), stock market capitalization 0.04(p-value 0.00<0.05), bank deposit 1.419(p-value 0.00<0.05), liquidity liabilities 0.004(p-value 0.00<0.05), broad money 1.55(p-value 0.00<0.05) and deposit interest rate 0.08(p-value 0.00<0.05) have significant positive effect on economic growth. In contrast, inflation rate -0.08(p-value 0.00<0.05) has a negative impact. In the short run, credit to private sector 0.15(p-value 0.01<0.05), stock market capitalization 0.02(p-value 0.03<0.05), bank deposit 0.84(p-value 0.00<0.05), broad money 0.30(p-value 0.02<0.05) and interest rate 0.03(p-value 0.00<0.05) are positively related to economic growth while inflation rate -0.03(p-value 0.00<0.05) has a negative impact. Liquidity liabilities - 0.0004(p-value 0.15>0.05) is negatively related to economic growth but statistically insignificant in the short run. Further, the results show a relationship between financial deepening and GDP growth in Kenya. Thus, the policymakers should improve the money supply in the economy to stimulate economic growth. This could be achieved through policies encouraging savings and investment and broadening the financial instruments available to the public. Financial institutions should be incentivized to innovate and offer various attractive savings and investment products to different population segments. By doing so, they can mobilize more funds from the public, which can then be channeled into productive investments that drive economic growth.