Government overshoots domestic borrowing target by Sh591 billion, squeezing households, businesses
Net domestic borrowing closed the fiscal year 2024/25 at Sh854.5 billion, 3.24 times the initial target of Sh263.2 billion, as the State tapped local credit to offset shortfalls in external financing.
The government’s appetite for domestic loans rose sharply in the year to June 2025, forcing it to borrow Sh854.5 billion, over three times what it had planned.
Treasury data shows the heavy borrowing squeezed out households and businesses, which struggled to access credit amid persistently high interest rates.
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Net domestic borrowing closed the fiscal year 2024/25 at Sh854.5 billion, 3.24 times the initial target of Sh263.2 billion, as the State tapped local credit to offset shortfalls in external financing.
In contrast, private sector credit growth remained negligible at only 2.2 per cent in the 12 months to June 2025, with total cumulative flows to households and businesses amounting to just Sh83.4 billion.
The heavy government borrowing worsened the soft economy, already reeling from falling real wages and disruptions caused by deadly street protests.
Commercial banks capitalised on the state’s strong credit appetite, directing Sh376.2 billion into instruments such as Treasury bills and infrastructure bonds while shunning households and businesses considered riskier amid high interest rates and rising defaults.
“By the end of June 2025, net domestic borrowing amounted to Sh854.5 billion,” Treasury said.
“The borrowing consisted of Sh474.6 billion from non-banking financial institutions, Sh376.2 billion from commercial banks, net repayment of Sh1 billion to non-residents, and a net repayment of Sh3.3 billion to the Central Bank.”
Domestic credit extended by the banking system grew by 18.6 per cent in the year to June 2025, up from 9.8 per cent previously, reflecting increased lending to the government.
Kenya’s public and publicly guaranteed debt owed to commercial banks climbed from Sh2.44 trillion in June 2024 to Sh2.86 trillion in June 2025. Total public debt for the year rose to Sh11.22 trillion from Sh10 trillion previously, with domestic debt reaching Sh6.32 trillion.
Treasury relied on domestic borrowing to cover a shortfall in net foreign financing, which came in at Sh179.7 billion against a target of Sh333.8 billion.
The Treasury noted that the shortfall was driven by the International Monetary Fund ending a multi-year programme in March over unmet conditions and delayed disbursements from the World Bank Group.
The government revised its domestic borrowing target three times through supplementary budgets to cover gaps created by both underperforming foreign financing and lower-than-expected tax revenue.
The Kenya Revenue Authority collected Sh2.42 trillion; Sh76 billion below the revised target of Sh2.49 trillion. Consequently, the fiscal deficit widened to 5.8 per cent of GDP from 5.6 per cent previously, derailing efforts at fiscal consolidation.
The State also leveraged falling interest rates to borrow more domestically after the Central Bank of Kenya cut the benchmark rate to encourage private sector lending. The CBR dropped from 13 per cent in August 2024 to 9.75 per cent in June 2025.
Yields on the 91-day Treasury bill fell to 8.2 per cent from 16 per cent over the same period, while returns on the 364-day paper declined to 9.8 per cent from 16.7 per cent, reducing the government’s debt service costs.
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