Kenya’s Public Debt Soars to Record Sh11.35 Trillion

Kenya’s total public debt has climbed to an unprecedented Sh11.35 trillion, driven primarily by increased domestic borrowing, according to the latest Treasury data.

The figures reveal that the debt burden has grown by nearly Sh1 trillion from Sh10.4 trillion recorded in March last year, as the government ramped up borrowing from local sources including banks, insurance firms, and pension schemes.

This marks the second time Kenya’s public debt has crossed the Sh11 trillion threshold, with the first occurrence in December 2023 when it reached Sh11.14 trillion due to the weakening shilling against major global currencies.

Domestic debt has seen the most significant increase, surging by 17 percent or an additional Sh890 billion to reach Sh6.12 trillion, up from Sh5.23 trillion a year ago.

This contradicts the Kenya Kwanza administration’s earlier pledge to limit expensive domestic borrowing in favor of cheaper external sources like the World Bank.

“The increase is mainly attributed to an increase in domestic debt,” the Treasury noted in its latest quarterly economic and budget review.

Commercial banks have emerged as major lenders to the government, with debt owed to them rising by 18.7 percent to Sh2.6 trillion in March 2025, compared to Sh2.19 trillion in March 2024.

The cost of domestic borrowing reached critical levels last year, with interest rates on government bonds climbing to 18.4 percent, while Treasury bills approached 17 percent.

This has proven lucrative for high-net-worth investors but has placed significant pressure on government finances.

In contrast, World Bank concessional loans typically offer interest rates below five percent.

However, a higher-than-expected budget deficit forced Kenya to increase domestic borrowing while simultaneously seeking additional loans from multilateral lenders like the International Monetary Fund.

External debt has shown more modest growth of just 1.35 percent, increasing to Sh5.23 trillion from Sh5.16 trillion previously.

This slower growth can be attributed to the strengthening of the Kenya shilling against the dollar, which has reduced the foreign debt stock.

The shilling has made a remarkable recovery from its January 2024 low of Sh161.35 against the dollar to Sh129.23 as of last week.

The Central Bank of Kenya has indicated that each one-unit strengthening of the shilling results in approximately Sh40 billion reduction in the country’s external debt.

At Sh11.36 trillion, Kenya’s public debt now stands at approximately 70 percent of GDP, raising concerns about sustainability.

The Treasury is expected to adhere to a debt ceiling of no more than 55 percent of GDP by present value by the end of 2029.

Economic analysts warn that the increased domestic borrowing risks crowding out the private sector at a time when bank lending to businesses remains below optimal levels needed to stimulate economic growth.

Banks have historically favored government lending during economic uncertainty to mitigate default risks.

As interest rates on government securities begin to decline in tandem with Central Bank rate cuts, the government has been able to borrow ahead of targets.

The 91-day Treasury bill rate fell to 8.9 percent in March 2025 from 16.7 percent a year earlier, while the 364-day Treasury bill rate declined to 10.5 percent from 17 percent.

Despite these lower rates, the substantial size of the debt means a significant portion of government revenues will continue to be directed toward debt service payments, potentially limiting resources available for development projects and essential public services.