Debt Burden Crosses Sh12 Trillion Mark

NAIROBI – Kenya's public debt has reached a critical juncture, posing significant risks to the cost of living and the business environment, the World Bank announced on Monday, 24 November 2025. In its 32nd Kenya Economic Update released in Nairobi, the global lender detailed that the nation's total public debt now stands at Sh12 trillion, equivalent to 68.7% of the Gross Domestic Product (GDP). This figure is substantially above the 50% debt-to-GDP ratio recommended for developing countries by the International Monetary Fund (IMF).

The report, titled "Kenya's Economic Crossroads," highlights that a combination of high debt obligations and suboptimal revenue collection has placed the country's fiscal space under immense pressure. This situation, the bank warns, is likely to negatively impact household budgets and the operational costs for businesses across the country. The primary cause for the debt increase was a rise in the primary deficit, which contributed a 1.3 percentage point growth in total public debt.

Implications for the Kenyan Public and Businesses

The World Bank's analysis indicates that the government's increasing reliance on domestic borrowing to finance its budget deficit is a key concern. This strategy, while reducing exposure to foreign exchange risks, raises the danger of "crowding out" the private sector. As the government borrows more from local banks, less credit is available for private businesses and individual Kenyans, potentially driving up interest rates and stifling investment and economic growth. For ordinary citizens, the consequences could manifest as higher taxes on goods and services as the government seeks to raise revenue to meet its debt servicing obligations. These obligations have become a major liability, consuming over half of the country's tax revenues and leaving limited funds for essential public services like healthcare, education, and infrastructure development.

Economic Outlook: A Mixed Picture

Despite the stark warnings on debt, the World Bank has revised Kenya's economic growth forecast for 2025 upwards. The economy is now projected to expand by an average of 4.9% between 2025 and 2027, up from a 4.5% projection made in May 2025. This optimism is largely attributed to a stable monetary outlook, supported by sound policy decisions over the past six months, and a faster-than-expected recovery in the construction sector. The Central Bank of Kenya (CBK) has taken measures such as cutting the base lending rate, which is expected to make loans cheaper for businesses and support private investment. Furthermore, Kenya's foreign reserves have reached a record high, bolstered by a stable shilling, and increasing diaspora remittances and export earnings.

However, the World Bank cautions that this positive outlook remains vulnerable to significant downside risks. "Ongoing fiscal challenges, including missed consolidation targets and high recurrent expenditure, remain a key source of vulnerability," the report states. Without sustained fiscal discipline and structural reforms to enhance competition and private investment, the economic gains could be undermined by the weight of the public debt.

Government's Strategy and Way Forward

The National Treasury, led by Cabinet Secretary John Mbadi, has acknowledged the fiscal pressures. In October 2025, the Treasury stated that while the debt level presents a heightened risk of distress, it remains sustainable. The government's strategy involves a suite of liability management operations, including refinancing expensive loans, extending repayment periods, and prioritizing concessional financing to improve debt sustainability. According to Treasury data from June 2025, the debt consists of Sh6.33 trillion in domestic obligations and Sh5.48 trillion in external debt. During the 2024/25 fiscal year, the government spent Sh1.72 trillion on debt service payments alone. The World Bank report underscores the urgent need for Kenya to balance its borrowing with enhanced revenue collection and prudent spending to protect both economic growth and the welfare of its citizens.