Country in danger of debt distress as loans stand at Sh11.8 trillion, warns CBK governor

CBK Governor Kamau Thugge/handout

Central Bank of Kenya Governor Kamau Thugge has revealed that the country’s public debt has climbed to Sh11.8 trillion, acknowledging that while the burden remainsmanageable, the economy isin a state of debt distress.

The governor said the country is meeting its obligations but warned of tight fiscal space and heavy repayment pressures.

Debt distress is a country’s inability or difficulty to service its debt obligations.

This situation is characterised by a high risk of default.

Thugge noted that ongoing reforms, improved revenue collection and disciplined borrowing will be key to stabilising the situation.

The CBK boss spoke when he appeared before the Public Debt and Privatization Committee of the National Assembly.

“Public debt remains sustainable but faces a high risk of debt distress,” Thugge said.

The Sh11.8 trillion public debt recorded in the financial year 2024-25 is an increase by 11.7 per cent and stood at 69 per cent of the GDP as at June 2025.

The Public Finance Management Act sets the debt ratio to the GDP at 55 per cent.

To mitigate the situation, Thugge noted that fiscal consolidation is required to reduce the pace of debt accumulation and lower the ratio of debt to GDP.

He also noted that CBK will continue supporting macroeconomic stability, modernise domestic debt market infrastructure, diversify the investor base and mitigate exchange rate risk.

CBK’s documents tabled before the Committee indicate that by June 2025, domestic debt grew by 17 per cent to Sh6.33 trillion, about 37 per cent of the GDP, with the external debt growing by 6.1 per cent to Sh5.5 trillion, which is 32.1 per cent of the GDP. 

Thugge’s documents also show that while the country’s domestic debt repayment performance has been 100 per cent for 2014-15 to 2020-21 financial years, it loosened from 2021-22 to the 2024-25 financial years.

According to the documents, domestic debt repayment in 2021-22 was 89 per cent, 2022-23 (94 per cent), 2023-24 (90 per cent) with 2024-25 year standing at 99.8 per cent. 

The CBK’s data also shows that Kenya’s debt-to-GDP ratio was approximately 67.4 per cent to 67.8 per cent as of late 2024 and early 2025.

CBK is also rooting for concessional external financing to remove pressure on domestic interest. 

The government is pushing for the alignment of monetary and fiscal actions with its borrowing plans. 

The CBK’s revelations come days after National Treasury Cabinet Secretary John Mbadi told MPs that Kenya almost defaulted on its debt obligations last year due to the shrinking financial space.

“The country almost defaulted in paying the loans last year,” he told the committee.