I have seen some people advancing an argument that we can simply default on our debt as a way out of the current crisis. This is wishful thinking and simplistic argumentation.
I guess these views are driven by the perception that China is responsible for our debt problems. China at the moment only accounts for 11% of our total public debt. Even if we were to default on debt to China we would still be owing Shs 4.5 Trillion and counting.
Half of our debt is a domestic debt owed to Kenyans, that is Shs 2.5 Trillion. How do you default against yourself? The entire financial system would collapse. Is it a just argument to argue that you can borrow people's money, waste it and then refuse to pay?
Over 30% of our external debt i.e. Shs 906 Billion is owed to foreign commercial banks. Even a hint of default would see dire consequences on the economy. The shilling would plummet making our external debt blow out of control.
We owe Shs 2.5 Trillion (USD 25 Billion) in foreign debt. A depreciation of the shilling by ten shilling to the dollar would see the debt grow by Shs 250 Billion without borrowing an extra shilling.
If the shilling were to depreciate to Shs 150 per dollar our external debt would immediately rise to Shs 3.75 Trillion i.e. an extra Shs 1.25 Trillion without any borrowing.
What then would be the point or rationale of defaulting on debt only for the economy to collapse? Who would be foolish enough to execute that idea?
#hivisasaoriginal