International Economics: IB Economics

The current political unrest in Kenya reflects the poor performance of the Kenyan economy, and the government's attempt to introduce austerity at the behest of international financial organisations. 

They've insisted upon this because Kenya has seen its debt obligations increase to the extent that whereas in 2019 debt repayments accounted for19% of export revenues today they account for 50% of export revenues. 

The fear is that the economy has entered a classic debt trap - in large part engineered by neo-colonial policies that have largely controlled Kenya's exports and imports. This is a contentious piece - I don't agree with the tone of all of it - but it is highly thought-provoking.  

After a couple of articles last week, one about the debt crisis in Sri Lanka, one about the fear that China has the ability to lend to the extent that it can create a debt trap for developing economies, it seems as though the two story intersect, with Sri Lanka asking China to restructure its debt, and making a number of other concessions in the hope that the Chinese agree.

The Sri Lankan economy is increasingly looking to China - the greatest number of tourists coming to the country pre-Covid were Chinese and the extent to which it imports from China has dramatically increased. 

However, the bottom line is that a lot of the Chinese investment, particularly in the President's hometown of Hambantota, was ill thought out - on the Sri Lankan side and only now are the pigeons coming home to roost. 

A pessimistic view of 2022, is provided by the World Bank, which sees the global economy growing by only 4.1% this year, compared with 5.5%. 

However, what's potentially of greater concern is widen inequality, not just between the largely vaccinated developed world and the unvaccinated developing world but the impact of stimulus programmes in the developed world and the tightening of monetary policy that's forecast which is likely to increase debt servicing costs for the latter.