Treasury eyes restructuring as Sh137 billion water sector debt stalls
Data from the Treasury shows that out of Sh140.4 billion lent to water agencies over the years, only Sh2.5 billion has been recovered as of June 2025.
Kenya’s water service providers are grappling with a massive debt crisis as billions of shillings in loans remain largely unpaid, prompting the National Treasury to explore ways to restructure the obligations.
The arrears have left taxpayers exposed to financial losses, while repayment of both domestic and foreign loans has stalled.
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Data from the Treasury shows that out of Sh140.4 billion lent to water agencies over the years, only Sh2.5 billion has been recovered as of June 2025.
This leaves a huge outstanding balance of Sh137.9 billion, with most utilities failing to meet their repayment obligations.
Treasury officials have said the restructuring will focus on aligning loan repayments with county revenue flows to help utilities that struggle with collection and remittance.
“The water sector continues to face financial challenges arising from ongoing legal reforms, given that water is a devolved function. Some county government-owned water companies have not been remitting funds to the respective water agencies, thereby constraining debt-servicing capacity and exacerbating arrears accumulation,” the Treasury stated in its latest annual debt report.
The report emphasises that resolving these challenges will require stricter enforcement to ensure funds are remitted on time, clearer intergovernmental financing rules, and the potential restructuring of water sector debt to fit county revenue realities.
Treasury often borrows from local and international lenders and on-lends the money to state-owned enterprises that cannot secure funding independently due to weak finances.
The loans are expected to fund projects of national importance, but poor performance and ineffective remittance systems have turned many of them into near-grants. Some debts date back to before devolution, when utilities operated under defunct municipal and county councils.
The proposed restructuring plan will also look at enforcement measures and intergovernmental frameworks to ensure utilities either repay their debts or are put on a sustainable repayment schedule
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