The effect of public infrastructure bond financing on government expenditure in Kenya

Abstract

Bonds are meant to promote economic growth through infrastructure development. Good infrastructure helps in providing economic services efficiently, promoting economic competitiveness and supports high productivity. Government expenditure is a term used to describe money that a government spends. Expenditure occurs on every level of government, from local city councils to federal organizations. There are several different types of government expenditure, including the purchase and provision of goods and services, investments, and money transfers. For some time, government funding was the main source of financing for large infrastructure projects. However, the sole reliance on government is not an appropriate or affordable way to fund such projects. Raising funds from the capital or money market has become an alternative source, and bonds are one of the most popular debt finance instruments used. The objective of the study was to examine the effects of infrastructure bond financing on government’s expenditure in Kenya. The study employed descriptive research design. This was in form of a cross sectional survey design. The researcher collected secondary data for the period 2007 to 2014 from the Central Bank of Kenya, Kenya Revenue Authority and the Kenya National Bureau of Statistics websites. Collected data was then entered into Statistical Package for Social Sciences (SPSS) software whereby multiple linear regression and correlations were run. The research findings showed that there is a relationship between amounts raised via infrastructure bonds and government spending. The nature of the relationship was a positive one in that increments in amounts collected via bond issued led to higher government spending in the study period. The study also showed that there is a positive relationship between total revenue collected and the amount of government expenditure. The study also established that increments in inflation rates led to additional spending by the government. This can be attributed to the high cost of commodities during times of inflation. The study concluded that there is a strong relationship between infrastructure bond and spending by the governments. Additionally, there was a strong relationship between total revenue collected and government current expenditure. The study also established that the amounts attained via government bonds and government expenditure had increased over the study period. the study recommends that national government should charily review the overall national spending and consequently allocate resources to the various economic sectors that are better placed to encourage growth. The study recommends that the national government ought to make investments in public bonds more attractive to the population. The study suggested that further studies can be done on the various factors that influence different expenditures by the various sectors and possibly their effects to the economy and livelihood of the citizens at large