Kenya’s total public debt has reached a record Sh11.35 trillion on the back of increased borrowing from the domestic market.
The latest Treasury data shows that the total public debt outstanding rose from Sh10.4 trillion in March last year as the government borrowed nearly Sh1 trillion from local banks, insurance firms and pension schemes.
This upended the pledge from the Kenya Kwanza administration to curb expensive borrowing in favour of cheaper sources like the World Bank to reduce debt servicing pressures.
The cost of borrowing from bonds topped 18.4 percent last year while Treasury bills neared 17 percent, a boon to high-net-worth investors, but a pain to a government that sought a lower rate.
World Bank offers concessional loans at rates lower than five percent, but a higher budget deficit forced Kenya to increase domestic borrowing as it tapped additional loans from the multilateral lenders like the International Monetary Fund (IMF).
This is only the second time for Kenya’s public debt to cross the Sh11 trillion mark. The public debt first crossed the mark in December 2023 when it touched Sh11.14 trillion in the aftermath of the weakening of the shilling against global currencies like the US dollar.
It dropped to Sh10.3 trillion in March 2024, largely on account of the strengthening of the shilling against the dollar, which reduced the stock of the foreign debt by Sh920 billion.
But increased domestic borrowings from high-net worth investors like banks, insurance firms and pension schemes lifted public debt above the Sh11 trillion mark again.
Domestic debt has grown the fastest in the past year by 17 percent or an additional Sh890 billion to touch Sh6.12 trillion from Sh5.23 trillion a year ago.
Public debt grew 9.3 percent from Sh10.39 trillion in March 2024 when the shilling strengthened against the dollar.
External debt has only grown by a mild 1.35 percent, rising to Sh5.23 trillion from Sh5.16 percent.
“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 quarterly economic and budget review paper.
“The increase is mainly attributed to an increase in domestic debt.”
Debt owed to commercial banks from local auctions of bonds and Treasury bills rose the fastest by 18.7 percent to Sh2.6 trillion in March this year from Sh2.19 trillion in March 2024, while holdings by non-banks and non-residents jumped to Sh3.33 trillion from Sh2.84 trillion.
Increased disbursements by multilateral lenders, the IMF and the World Bank, prompted the rise in external debt.
The slowdown in the growth of external debt benefited from the strengthening of the shilling from a low of Sh161.35 on January 22, 2024 to Sh129.23 as of Friday last week.
The Central Bank of Kenya (CBK) previously indicated that the strengthening of the shilling by one unit resulted in a Sh40 billion cut to the country’s external debt stock.
The growth in domestic debt comes amid a fall in local interest rates that is allowing the State to borrow ahead of the targets.
Net domestic financing in nine months to March stood at Sh628 billion against a target of Sh450.4 billion, the Treasury says. Interest rates on government securities have fallen in tandem with CBK cuts to the benchmark rate.
“The 91-day Treasury bill rate declined to 8.9 percent in March 2025 from 16.7 percent in March 2024. The 182-day Treasury bill rate declined to 9.1 percent in March 2024, while the 364-day Treasury bill also declined to 10.5 percent from 17 percent over the same period,” the Treasury says.
The decline in domestic interest rates has allowed the government to borrow more as investors race to buy the bonds and bills and lock in relatively higher yields as they anticipate further falls.
The increased domestic borrowing risks the prospect of the State crowding out the private sector at a time when banks’ lending to businesses is below the ideal rate needed to spur economic growth.
Banks have historically favoured lending to the government in a soft economy to avoid the risk of defaults.
At Sh11.36 trillion, Kenya’s public debt now stands at an equivalent of 70 percent of GDP.
The country’s debt ceiling is, however, pegged on the present value (PV,) which is calculated by discounting future debt service payments back to the present using a chosen discount rate.
The Treasury is expected to adhere to the debt ceiling of no more than 55 percent of GDP by present value by the end of 2029.
The increase in the size of public debt, especially from domestic sources, is expected to raise the share of government revenues spent on debt service by keeping interest rates under pressure.
The government is already paying high for domestic credit, having borrowed at rates of up to 17 percent on a one-year Treasury bill.
