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UN sounds the alarm on Kenya’s high debt service costs
A makeshift classroom at Embositit Primary School in Tiaty, Baringo, on September 11, 2024. A UNCTAD report says that Kenya spends more on debt interest payments than on either health or education, a situation that is untenable and must change.
A United Nations agency has flagged Kenya’s elevated expenditure on debt interest payments which it said is constraining the country’s ability to fund critical services such as education and healthcare.
The UN Conference on Trade and Development (UNCTAD) has listed Kenya among countries with the biggest share of net revenues going into servicing the cost of loans, shining a spotlight on expensive debt procured in the past decade.
An analysis by UNCTAD shows that Kenya spent nearly a third of its net revenue on paying interest on loans borrowed from domestic and foreign creditors last year.
Kenya’s interest repayments gobbled up 29.3 percent of its total revenues in 2024, the analysis shows, ranking the country among Africa’s biggest economies with the highest vulnerability in terms of portion of revenue sunk into debt service, behind oil-rich Angola (30.1 percent) and Egypt (55.8 percent).
The share of Kenya’s revenue going into paying interest to holders of Treasury bonds and bills, foreign governments such as China and multilateral lenders like the World Bank Group has more than doubled in the last decade.
The UNCTAD analysis revealed that the share of Kenya’s net revenues utilised to pay interest on debt has risen from 9.5 percent in 2010 to 13.2 percent in 2014 and 25.6 percent in 2022—pointing to the pressure on other public services financed using the same revenue collections.
“Developing countries’ interest payments are not only growing fast relative to public revenues; they are also outpacing critical public expenditures such as on health and education,” UNCTAD warns in its newly published World of Debt Report 2025.
“The rapid increase in interest payments is constraining spending in other critical areas across developing countries.”
Disclosures by the Treasury show that in the fiscal year ended June 30, 2024, interest payments on public debt stood at Sh840.7 billion, accounting for 31.1 percent of total revenue of Sh2.702 trillion.
This even as the government struggles with subdued revenue performance, which has left it with a dilemma over how to fund the Sh4.29trillion budget for the current 2025/26 fiscal year.
Documents submitted by the Treasury show that the Kenya Revenue Authority (KRA) collected Sh2.26 trillion by April against a target of Sh2.51 trillion—leaving a shortfall that points to amplified borrowing in the medium term to plug financing holes.
The missed revenue targets have seen the government review the ordinary revenue target downwards to Sh2.49 trillion from the projected Sh2.58 trillion in the supplementary estimates III before the National Assembly, with the Appropriation in Aid (AiA) projected at Sh489 billion.
The Treasury linked the KRA’s below-target performance to shortfalls in the collection of ordinary revenue and AiA by Sh195.3 billion and Sh57.7 billion respectively.
Revenue pressure
The revenue pressure is compounded by the fact that the Treasury has gone slow on significant tax measures, with the Finance Bill 2025 projected to only yield Sh30 billion new revenues.
This is a major scale-down from the shelved Finance Bill 2024 that had targeted fetching Sh344.3billion in fresh tax through aggressive measures.
Kenya’s ballooning interest expenses have in recent years crossed salaries and wages, administration, operation, and maintenance of public offices for the national government to become the single-largest expenditure.
The growth underlines the impact of commercial and semi-concessional loans, which the country has contracted in the past decade to build much-needed roads, bridges, power plants, and a modern railway line.
For instance, interest payments on domestic and foreign debt are projected to rise to nearly Sh1.10 trillion this financial year ending July 2026 from an estimated Sh1 trillion last fiscal year ended June.
“Frankly speaking, at one point we became a little bit careless as a country, and this happened even before Covid. Most of them [the expensive loans], are maturing between now and 2032, and that is why we have the pressure,” Treasury Cabinet Secretary John Mbadi said in a recent interview.
The interest payment on loans reflects the biggest line item in the next financial year's budget, implying that more resources will be diverted from productive and critical investments — if revenue falls short of the Sh2.75 trillion target — because debt expenses are a priority expenditure.
The UNCTAD report, based on the IMF World Economic Outlook (April 2025) and World Bank World Development Indicators, suggests that countries spending more on interest payments than basic services such as education and health increased to 22 in the 2021-23 period from 12 in 2011-13.
Kenya’s spending on the education sector is this fiscal year forecast at Sh702.7 billion from an estimated Sh681.93 billion in the financial year ended June 30, 2025, while the budget for health is Sh138.1 billion from Sh134.3 billion.
The combined budget for health and education trails the Sh1.1 trillion interest payment obligations by more than Sh250 billion.
“The number of countries where interest payments surpassed spending on these essential services is rising. From 2021 to 2023, 22 countries spent more on interest payments than on education, and 45 countries spent more on interest than on health,” the report states.
“A total of 3.4 billion people live in countries that spend more on interest payments than on either health or education. This situation is untenable and must change.”
Debt sustainability
The Treasury's debt sustainability analysis last October revealed that while the public debt is sustainable, it carries a high risk of debt distress.
For instance, the present value of public debt was 63 percent of the GDP against the benchmark debt threshold of 55 percent of debt to GDP.
The Treasury has until November 1, 2028 to bring the present value of public debt within the threshold. Present value of public debt represents the current worth of all future payments (principal and interest) that a government is obligated to make on its outstanding debt.
“We are still able to pay our debts, but the concern has been about sustainability where we are spending a lot of our money on debt servicing, or the percentage of debt servicing vis-à-vis our revenue is high,” Mr Mbadi said.
“It, therefore, calls upon us who are charged with managing our economy to manage our debt in a way that will not affect essential services because if the public is being taxed and they are not getting services because you are servicing the debts, then you are courting a situation where there can be an uprising or civil unrest.”
