Debt surpasses Sh12.3tn as domestic borrowing soars

*Senate Finance and Budget Committee chairman Ali Roba*

Senators have warned that the increasing public debt is unsustainable as the Treasury relies heavily on expensive domestic borrowing.

A report by the Senate Finance and Budget Committee shows that public and publicly guaranteed debt was Sh12.3 trillion in December 2025, equivalent to 67.5 per cent of Kenya’s GDP.

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This level of indebtedness is well above the 55 per cent threshold set under the Public Finance Management (PFM) framework, raising questions over long-term sustainability.

“Without sustained fiscal consolidation and prudent debt management, Kenya risks breaching its obligations under the PFM Act,” the report read.

Committee chairman Senator Ali Roba of Mandera tabled the report in the House.

The report forms part of Parliament’s review of the 2026 Medium-Term Debt Management Strategy (MTDS) submitted by the National Treasury.

It shows government plans to rely heavily on domestic borrowing over the next three financial years, with 78 per cent of net borrowing expected from local sources and 22 per cent from external sources between 2026-27 and 2028-29.

“Domestic borrowing may be easier to access, but it comes with higher interest rates and shorter repayment periods,” Roba said. “This could place enormous pressure on the national budget.”

The committee also warned that nearly 45 per cent of domestic debt will mature within three years ¾ with 21.6 per cent maturing within one year.

“This concentration of near-term maturities exposes Kenya to refinancing risk, particularly if domestic liquidity tightens or interest rates rise,” the report notes.

Currently, domestic debt stands at Sh6.84 trillion, accounting for 55.6 per cent of total debt, while external debt totals Sh5.46 trillion.

Most domestic borrowing comes in the form of Treasury bonds and Treasury bills issued in the local market.

Senators expressed concern that rising debt obligations could further tighten fiscal space and reduce funding for development projects.

By June 2025, the government spent Sh1.72 trillion on debt servicing, up from Sh1.56 trillion in 2024.

Domestic debt accounted for Sh1.14 trillion, while external debt servicing stood at Sh579 billion.

Debt servicing now consumes more than 71 per cent of government revenue, up from 69 per cent the previous year.

Stakeholders who submitted views to the committee also raised concerns about increased borrowing.

The Institute of Certified Public Accountants of Kenya cautioned that sustained domestic borrowing could crowd out the private sector’s access to credit.

“Excessive government borrowing from the local market limits funds available for businesses, which could slow down economic growth,” ICPAK chief executive James Mwangi said.

Similarly, the Council of Governors warned that debt servicing reduces revenue available for counties.

“More than half of the country’s projected ordinary revenue is going into debt servicing, leaving counties with much less to deliver essential services,” CoG said.

The Medium-Term Debt Management Strategy highlights plans to diversify borrowing through instruments such as diaspora bonds, green bonds, and sustainability-linked bonds.

Senators cautioned, however, that these instruments carry risks.

“We must evaluate all new instruments carefully. Innovative financing should not become an additional burden to taxpayers,” the senators said.

The committee also raised concerns about structured financing arrangements such as securitisation and collateralised borrowing, some of which include government guarantees.

“If expected revenues fail, these arrangements could be converted into direct public debt, compounding the problem,” the Senate report warns.

To enhance transparency, the committee recommended the National Treasury submits a detailed report to Parliament within 60 days, outlining the structure, costs, and risks of all new debt instruments.

Senators also urged the government to prioritise efficient use of public resources and invest in projects with high economic returns.

Additionally, the report recommends maintaining the fiscal deficit at 5.3 per cent of GDP in 2026-27, gradually reducing it to 3.6 per cent in 2027-28 and 3.3 per cent in 2028-29.

“Achieving sustainable debt levels will require disciplined borrowing, stronger revenue collection, and careful spending,” Senator Roba said.