Kenya’s Public Debt Explodes Past Sh12 Trillion, Devouring Nearly Half of All Tax Revenue

Kenya’s total public debt has surged to Sh12.29 trillion, a staggering figure that now stands at 67.8 per cent of the country’s gross domestic product and blows well past the 55 per cent ceiling Parliament set as the legally acceptable threshold, according to a damning new report by Controller of Budget Margaret Nyakang’o.

The debt stock, which stood at Sh11.80 trillion at the close of the 2024/25 financial year in June 2025, swelled by four per cent in just six months, adding nearly half a trillion shillings between July and December 2025 alone.

The numbers, drawn from the National Government Budget Implementation Review Report for the first half of the 2025/26 financial year, expose the full weight of a borrowing addiction that critics say has become structurally irreversible under President William Ruto’s administration.

Of the Sh12.29 trillion total, domestic lenders hold Sh6.82 trillion while external creditors are owed Sh5.46 trillion.

The domestic pile has grown aggressively, rising by more than Sh514 billion in the first six months of the financial year, driven almost entirely by an unrelenting government appetite for Treasury bills and bonds.

At its peak, the government was borrowing roughly Sh2.8 billion every single day from local markets, a pace that has alarmed economists and now draws a direct rebuke from the country’s own constitutional budget watchdog.

“To enhance fiscal impact and ensure debt sustainability, borrowing should be strictly aligned with development projects that have measurable economic and social returns.” — Controller of Budget Margaret Nyakang’o

The most alarming detail buried in the report is not the headline debt figure itself but what servicing it is costing ordinary Kenyans. In the six months to December 2025, the government spent Sh923.14 billion simply keeping up with existing debt obligations, including principal and interest.

Of that sum, Sh545.9 billion was consumed by domestic debt servicing alone, comprising Sh183.66 billion in principal repayments and Sh362.24 billion in interest payments.

Put another way, for every shilling collected in tax revenue during the period, 44 cents went directly toward servicing domestic debt. Nothing was left for schools, hospitals, roads or the millions of Kenyans living below the poverty line who were promised a bottom-up economic transformation.

Dr Nyakang’o did not mince her words. She warned that the government’s domestic borrowing trajectory directly crowds out private sector investment, driving up interest rates and making credit unaffordable for businesses and individuals.

Her report notes that financial corporations, including commercial banks and insurance companies, held the largest share of the domestic debt pile, with commercial banks alone sitting on Sh5.25 trillion in government paper by December 2025.

Banks that lend to the government at guaranteed high rates have little incentive to take the credit risk of lending to Kenyan businesses, a dynamic that the Parliamentary Budget Office has separately described as an existential threat to Kenya’s long-term growth story.

The national government budget for the 2025/26 financial year stands at Sh4.69 trillion, up seven per cent from Sh4.37 trillion the previous year. But revenue performance is struggling to keep pace with the country’s ambitions.

In the first half of the year, the government collected Sh2.17 trillion, representing 49 per cent of the full-year revenue target. Against that backdrop, total government spending in the same period reached Sh2.18 trillion, marginally exceeding collections, with the resulting gap financed through yet more borrowing.

The Education sector drew the fattest slice of the budget at Sh703.07 billion, trailed by the Energy, Infrastructure and ICT cluster at Sh534.63 billion. Yet even as headline allocations rise, the Controller of Budget flagged persistently low absorption of the development budget as a systemic failure.

Money is being appropriated. It is not being spent. Procurement automation remains incomplete. Key projects are stalled.

The gap between budgeted development spending and actual disbursements has widened year after year, calling into question whether Kenya’s ballooning borrowing is actually translating into assets that could justify the cost.

One of the more incendiary revelations in the report concerns the use of Article 223 of the Constitution, the emergency spending provision that permits the National Treasury to draw from the Consolidated Fund without prior parliamentary approval, provided it seeks ratification within two months.

During the first half of the 2025/26 financial year, the Treasury invoked Article 223 to approve Sh115.11 billion in spending, the bulk of which, Sh86.29 billion or 75 per cent of the total, was deployed to fund a sovereign Eurobond buyback.

The government used a constitutional emergency mechanism, designed for disasters and unforeseen crises, to execute an international capital markets transaction.

That Eurobond buyback forms part of what the Treasury frames as proactive liability management. Kenya has now executed four sovereign bond buybacks in just over two years. In October 2025, the government repurchased $628.44 million of its 7.25 per cent notes due 2028, paying bondholders a 3.75 per cent premium over face value.

In February 2026, Kenya returned to international capital markets and raised $2.25 billion in a dual-tranche Eurobond, issuing $900 million in seven-year notes at 8.1 per cent and $1.35 billion in 12-year bonds at 8.95 per cent, using the proceeds in part to conduct further buybacks of its 2028 and 2032 notes. The strategy has earned Kenya cautious praise from rating agencies.

Moody’s upgraded the country’s sovereign credit rating from Caa1 to B3 in January 2026, citing improved foreign exchange reserves, which reached $12.2 billion, equivalent to 5.3 months of import cover. S&P Global had upgraded Kenya to B in August 2025.

But the ratings improvement, welcome as it is, papers over a deeper structural crisis. Kenya’s interest-to-revenue ratio now stands at over 30 per cent, a level the World Bank has described as indicative of serious debt distress.

The Parliamentary Budget Office projects that interest payments alone will average Sh1.2 trillion annually over the medium term, consuming roughly 41 per cent of total government revenue. Interest costs are set to become the single largest line item in the national budget, outstripping what the government spends on healthcare, agriculture and social protection combined, and reaching 150 per cent of total development spending over the 2026/27 to 2028/29 period.

The 2026 Medium-Term Debt Management Strategy, tabled before the National Assembly, reveals the full trajectory of the crisis.

The government plans to borrow an additional Sh5.9 trillion between the 2026/27 and 2028/29 financial years, a pace equivalent to Sh5.5 billion a day or Sh3.8 million a minute around the clock. On current projections, total public debt will reach Sh15.7 trillion by June 2029.

The strategy anchors 82 per cent of new borrowing in the domestic market, a figure that the Parliamentary Budget Office says breaches the limits set under the Public Finance Management Act and risks compounding the very crowding-out effect Nyakang’o has warned against.

The International Monetary Fund, whose $3.6 billion extended programme with Kenya lapsed in April 2025 without completion of its final review, dispatched a staff mission to Nairobi in late February 2026 to lay the groundwork for a new programme.

The mission’s priorities were familiar: fiscal consolidation, debt sustainability, governance reforms and revenue mobilisation. Kenya Revenue Authority has been set a target of Sh3.5 trillion for 2026/27, a stretch goal that most analysts regard with scepticism given that the authority has missed its targets in each of the past three consecutive years.

Dr Nyakang’o’s recommendations are technically sound but politically difficult. She has called on the government to reduce its fiscal deficit in the medium term, shift borrowing toward concessional external financing, accelerate full automation of the Electronic Government Procurement System and integrate it with the Integrated Financial Management Information System, and restrict Article 223 spending to genuine emergencies.

Whether a government that has already spent the constitutional emergency piggybank on a Eurobond transaction will choose fiscal restraint over its borrowing habit remains the defining question for Kenya’s economic future.