Taxpayers footed an additional Sh98.1billion in interest payments on the government’s domestic debt in the year to June 30, 2025, on increased local borrowing in an environment of relatively elevated interest rates.
Disclosures by the Controller of Budget (CoB) Margaret Nyakang’o, showed that interest payment on domestic debt rose to Sh632.3billion in June this year, up from Sh534.2billion in 2024, marking the sharpest growth in over five years at 18.36 percent.
The Sh632.3 billion expenditure on interest payments on domestic debt between July 2024 and June 2025, eclipsed the Sh545.8 billion put into all development projects for the period, and just Sh40 billion shy of the funding to the entire education sector during the year.
The spending in the year to June 2025 also surpassed the Sh542 billion spent on both interest and principal payments on domestic debt five years ago, as shown in the Controller of Budget (CoB) report on the national government budget for the 2024/25 fiscal year.
Interest payments during the year surpassed principal by 75 percent, with payments in November 2024 alone being Sh88.4 billion, the CoB report shows.
The government also spent Sh74.4 billion on domestic interest payments in August 2024, Sh74.3 billion in June this year, and Sh64 billion in September last year, marking the four months with the heaviest burden.
The State spent Sh301 billion on domestic interest during the four months alone, more than all the funding to projects undertaken by seven state departments during the whole year. All the funding for projects in roads, housing, agriculture, energy, and transport sectors during the year cost Sh281 billion.
The heavy spending on domestic interest comes as the CoB raises concerns over the government’s heavy borrowing from within the country, warning that it could have heavy implications on the economy and worsen the repayment burden.
“However, recent growth in the proportion of short-term debt instruments, like treasury bills, heightens the government’s exposure to refinancing risks, especially in a high-interest-rate environment.
“While domestic borrowing presents the government with an alternative source of budget financing, unchecked borrowing could lead to refinancing risks due to high domestic interest rates, a debt trap, and limited funds to cater for recurrent and development activities,” CoB Margaret Nyakango says.
Dr Nyakango’s concerns come at a time when the total domestic debt service has closed in on clocking Sh1 trillion, with interest accounting for about two-thirds of the burden.
Domestic debt service during the year totaled Sh992.4 billion, out of which principal accounted for just Sh360 billion.
Domestic interest costs increased by Sh98.1 billion from Sh534.2 billion in the year to June 2024, surpassing a Sh79.3 billion growth the previous year.
Interest has been the main cause for the surge in domestic debt service, which has more than doubled from just 20 percent of national government revenues in 2020 to 43.6 percent this year.
Overall domestic debt stock accounted for 54 percent of Kenya’s public debt, which hit Sh11.7 trillion in June this year.
The public debt grew by Sh1.14 trillion from Sh10.56 trillion in June 2024.
Domestic debt alone grew by 17 percent (Sh920 billion) from Sh5.41 trillion in June 2024 to Sh6.3 trillion.
This followed Treasury’s decision to borrow Sh915.7 billion from the domestic market, surpassing the original plan by overborrowing Sh379.7 billion locally.
“Domestic debt increased by 17 percent (from Sh5.41 trillion as of 30th June 2024), attributable to increased borrowing in the domestic market, while external debt increased marginally by 4 percent (from Sh5.17 trillion as of 30th June 2024),” the CoB report notes.
Domestic debt now accounts for 54 percent of Kenya’s public debt and is comprised of treasury bonds (Sh4.63 trillion), treasury bills (Sh615.90 billion), CBK overdraft (Sh61 billion), Pre-1997 CBK debt (Sh17.2 billion), IMF funds on lending to the Government (Sh83.50 billion), and others (Sh5.6 billion).
Of the Sh6.3 trillion domestic debt, commercial banks hold Sh2.69 trillion, pension funds Sh1.8 trillion, insurance funds Sh455 billion, and the Central Bank holds Sh94.9 billion.
A portion of Sh1.27 trillion debt is held by other categories of investors, the CoB report shows.
CoB Nyakang’o observes that a growing trend by the government to borrow more short-term loans has raised the proportion of treasury bills from 11.4 percent of the domestic debt to 15.9 percent over the year to June 2025.
