Kenya deviates from debt plan, risks debt trap amid soaring interest payments – CoB

Kenya strayed from its 2024/25 Medium-Term Debt Management Strategy (MTDS), significantly increasing its domestic borrowing and exposing the country to heightened refinancing and debt distress risks.

The latest national budget review report by the Office of the Controller of Budget reveals that as of June 30, 2025, Kenya’s total public debt stood at Sh11.73 trillion.

Of this, Sh6.33 trillion was sourced from domestic lenders and Sh5.40 trillion from external creditors.

This represents a 17 per cent increase in domestic debt from the previous year, far exceeding the MTDS’s recommended borrowing mix of 45 per cent domestic and 55 per cent external.

The ratio during the Financial Year stood at 54:46, signalling a reversal in planned debt management.

The 2024 MTDS covers the period 2024/25-2026/27, and it outlines the strategies and initiatives to be implemented, aiming at minimising costs and risks of debt management.

These include the gradual reduction of short-term debt, lengthening the average maturity of the portfolio, and prioritising concessional external borrowing.

Notably, the deviation from the set debt management strategy comes amid growing concern over spiralling interest payments, which are now outpacing the country’s efforts to reduce its overall debt.

According to CoB Margaret Nyakang’o, Kenya spent Sh632.3 billion on interest payments alone in FY 2024/25, nearly twice the Sh360.1 billion spent on repaying principal loans.

She highlights that debt service on domestic obligations hit Sh1.05 trillion, driven by a surge in short-term Treasury bills.

Out of this, Sh632.3 billion went to interest payments, while only Sh360.1 billion was used to reduce principal loan amounts

“The total domestic debt service was Sh992.39 billion, comprising principal repayments of Sh360.09 billion and interest payments of Sh632.30 billion,” said Nyakang’o in the report.

She further reckons that the growing reliance on short-term domestic borrowing to plug budget deficits is now triggering fresh concerns, as it has increased local debt service obligations by Sh1.05 trillion, up from Sh830 billion the previous year.

The sharp increase, largely driven by high interest costs on treasury bills, has exposed the government to heightened refinancing risks.

This as more debt falls due within shorter periods, forcing the National Treasury to repeatedly roll over obligations at even steeper costs.

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• risks debt trap amid soaring interest payments – CoB

Nyakang’o warns that this approach comes with a substantial cost as the high interest rates on these short-term instruments mean that the government is paying a premium for its borrowing.

Short-term debt instruments such as 91-day, 182-day and 364-day Treasury bills have become the government’s preferred source of financing in recent months, as constrained access to external markets and tightening global credit conditions limited longer-term options.

Domestic debt servicing accounted for the bulk of Kenya’s repayment obligations in the year, outpacing external commitments and underlining the shift in borrowing patterns.

Of the Sh1.7 trillion spent on public debt in the period, the report shows Sh992.4 billion went to domestic lenders, with interest costs making up the lion’s share.