Kenya shifts to local borrowing as domestic debt hits Sh6.12 trillion
External debt during the same period rose marginally by Sh70 billion to Sh5.23 trillion.
The government is increasingly turning to local lenders to plug its budget deficit, as external borrowing slows and pressure mounts to meet funding targets.
New data from the Treasury shows that Kenya’s domestic debt has grown by Sh890 billion in the past year, reaching Sh6.12 trillion by the end of March.
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This marks a sharp shift from earlier promises to rely more on cheaper foreign loans from institutions like the World Bank and the IMF.
External debt during the same period rose marginally by Sh70 billion to Sh5.23 trillion.
“The total public and publicly guaranteed debt stock as at March 31, 2025, amounted to Sh11.36 trillion, an increase of Sh966.3 billion from Sh10.39 trillion in March 2024,” the Treasury says in its latest review. “The increase is mainly attributed to an increase in domestic debt.”
The government’s borrowing appetite has grown even as interest rates on Treasury bills and bonds decline, giving it room to tap into the local market more aggressively.
The Treasury reports that net domestic financing in the nine months to March hit Sh628 billion, well above the target of Sh450.4 billion.
Interest rates on government securities have dropped sharply, with the 91-day Treasury bill falling to 8.9 per cent in March 2025 from 16.7 per cent a year earlier.
The 182-day and 364-day rates also fell to 9.1 per cent and 10.5 per cent, respectively. This has attracted investors keen to lock in higher returns before further declines, helping the government raise funds faster than expected.
By contrast, the growth of external debt has slowed, aided by the strengthening of the shilling.
The currency rose from a low of 161.35 to 129.23 between January and May, which helped reduce the value of Kenya’s foreign-denominated debt.
The Central Bank of Kenya estimates that each unit gain in the shilling trims external debt by Sh40 billion.
However, the shift toward local borrowing brings new challenges. Heavy borrowing from banks, pension funds and insurance firms risks squeezing out private sector access to credit.
With businesses already struggling to secure affordable loans, the state’s growing presence in the credit market may limit economic recovery.
Debt from domestic banks alone rose 18.7 per cent over the year, reaching Sh2.6 trillion, while holdings by non-bank entities and non-residents grew to Sh3.33 trillion from Sh2.84 trillion.
Kenya’s total public debt now stands at 70 per cent of gross domestic product, raising fresh concerns about sustainability and the impact on development spending.
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