Summary

Kenya's total public debt escalated by KSh1.1 trillion during the 2024/2025 fiscal year to reach a new high of KSh11.7 trillion, according to a report by the Controller of Budget, Dr. Margaret Nyakang'o, presented to the National Assembly on Tuesday, 18 November 2025. This significant increase, up from KSh10.6 trillion in the preceding year, underscores the mounting fiscal pressures from persistent budget deficits, currency depreciation, and a strategic shift towards domestic borrowing. The debt now constitutes 67.8% of the nation's Gross Domestic Product (GDP), a figure that continues to exceed the sustainability thresholds recommended by international financial institutions and places a severe strain on the country's finances.

Debt Composition and Key Drivers

The detailed breakdown of the debt portfolio, as of the end of the 2024/25 financial year, reveals a composition of KSh6.3 trillion (54%) in domestic debt and KSh5.4 trillion (46%) in external debt. This structure highlights the government's increasing reliance on the local market to finance its operations. Data from the National Treasury indicates that between June and September 2025 alone, domestic borrowing surged by KSh340 billion while external debt saw a reduction of approximately KSh80 billion. This pivot is a strategic move to mitigate exchange rate risks associated with foreign-denominated loans. However, it has also contributed to the rapid accumulation of the total debt stock. Dr. Nyakang'o's report identified sustained fiscal deficits and the depreciation of the Kenyan Shilling as primary drivers behind the accelerated borrowing.

The Soaring Cost of Servicing

A direct consequence of the ballooning debt is the substantial increase in servicing costs, which now consume an alarming portion of government revenue. In the 2024/2025 fiscal year, the National Treasury spent KSh1.6 trillion on servicing its loans. This figure represents a significant portion of the country's ordinary revenue, with some analyses indicating that as much as 70% of tax collections are allocated to debt repayment, severely constraining funds available for essential public services and development projects. Projections for the upcoming 2025/2026 fiscal year show that interest payments alone are expected to reach at least KSh1.1 trillion. This heavy burden has been flagged by both the World Bank and the International Monetary Fund (IMF), which classify Kenya as being at high risk of debt distress, even while maintaining that the debt is currently sustainable.

Economic Implications and Government Strategy

The debt-to-GDP ratio of 67.8% is considerably above the 50% threshold recommended by the IMF for developing economies, a situation that poses risks to macroeconomic stability. High debt levels can crowd out private sector investment, exert pressure on the currency, and limit the government's flexibility to respond to economic shocks. In response, the government has outlined a multi-pronged strategy focused on fiscal consolidation. According to the National Treasury's 2025 Medium-Term Debt Management Strategy, the administration aims to reduce the debt-to-GDP ratio to a more manageable 55% by the 2028/2029 financial year. Key pillars of this strategy include enhancing revenue collection through measures in the Finance Act 2025, controlling public expenditure, and shifting borrowing preferences. The government plans to raise KSh923.2 billion to finance the 2025/26 budget, with a heavy skew towards the domestic market (KSh635 billion) over external financing (KSh287 billion). Furthermore, the Treasury is pursuing concessional loans from multilateral partners like the World Bank and the African Development Bank to reduce the cost of borrowing. These institutions have committed over KSh230 billion in program loans for the fiscal year, tied to the implementation of specific governance and fiscal reforms.

The Path Forward for Kenya

As Kenya navigates this challenging fiscal landscape, the focus remains on the government's ability to implement its consolidation plan effectively. The success of revenue-enhancing measures, disciplined spending, and the strategic management of new and existing debt will be critical. The high cost of debt servicing remains a primary concern, diverting resources from critical sectors such as health, education, and infrastructure, which are vital for long-term economic growth and improving the welfare of Kenyan citizens. The coming months will be a crucial test of the country's resolve to stabilize its public finances while fostering an environment for inclusive and sustainable economic development.