The National Treasury has unveiled a radical shift in its debt strategy, betting the house on the Kenyan saver. But is the local market deep enough to carry the load?

In a move that offers a sustainable balance between cost and risk exposure, the government plans to source 80% of its gross borrowing from domestic markets over the next five years. Director General of Public Debt Management, Raphael Owino, argues this will insulate the economy from the volatility of the dollar and the whims of the Eurobond market. It is a sovereignty play, but it comes with a dangerous price tag.

The Dollar Trap

Kenya has been burned before. The depreciation of the shilling in 2024 sent external debt service costs skyrocketing, forcing the Exchequer to make painful budget cuts. By pivoting to shilling-denominated debt, the Treasury effectively eliminates exchange rate risk. "We are borrowing in the currency we print," an official noted. "It’s safer."

• The Target: 82% domestic borrowing in the 2025/26 Annual Public Debt Management Report, up from the current 75%.
• The Instrument: A shift from short-term Treasury bills to medium and long-term bonds to lengthen the maturity profile and reduce refinancing pressure.

Banks vs Businesses

The danger lies in "crowding out." If the government is borrowing 80% of the available credit, banks have little incentive to lend to the private sector. Why risk lending to a small business when you can lend to the state at 16% risk-free? Critics warn this could strangle the very engine of growth—SMEs—that the government claims to support.

The Sustainability Gamble

Owino mentions "blended finance" and "public-private partnerships" as the bridge. But the reality is simpler: the government is hungry for cash. By feeding that hunger locally, they secure the nation's books but risk starving its businesses. It is a high-stakes gamble on Kenya's financial resilience.