The Determinants of Deficit Financing in Kenya

Abstract

Fiscal deficits have attracted a great deal of attention over the past few decades. This is so because it has been blamed for most of the challenges that beset the developing countries such as high inflation rates, over indebtedness, loss of a country‟s sovereignty, crowding out of private sector among others. The objective of this study was therefore to analyze the determinants of deficit financing in the Kenyan context. This study adopted exploratory design which attempted to examine the determinants of fiscal deficit. The study analyzed data for 10 years (2003 to 2012) which represented the sample size for the study using Multivariate Linear Regression model specification. The analyzed data 0 presented using tables and figures. The study established that government ordinary revenues in Kenya had been gradually increasing and that government expenditure has been increasing over the study period. The study further established that there is a direct relationship between debts and the fiscal deficits. The study concludes that government ordinary revenues, external revenue, debt service and government expenditure are significant determinants of fiscal deficit in Kenya. The study recommends that the government should intensify its efforts in channeling government expenditure to productive activities that will grow capacity of the economy to mitigate debt unsustainability. Secondly, the government should explore avenues of expanding the revenue base to minimize borrowing. The study finally recommends that austerity measures be instituted to curb non-productive and wasteful expenditures across government.