Kenya’s Public Debt Hits Sh12.29 Trillion as Borrowing Surpasses Legal Limits

Kenya’s national debt stock reached a new milestone of Sh12.29 trillion in the final half of 2025. A recent report from the Controller of Budget, Margaret Nyakang’o, reveals that total public debt grew by four percent between June and December. This surge highlights the ongoing fiscal pressure on the East African nation as it balances infrastructure needs with mounting repayment obligations.

The Composition of the Debt

The current debt portfolio is split between local and foreign creditors. Domestic lenders account for Sh6.82 trillion of the total, while external lenders hold Sh5.46 trillion. This heavy reliance on internal markets comes primarily through the sale of Treasury bills and bonds. While this strategy helps develop the local financial sector, Dr. Nyakang’o warned that excessive domestic borrowing often drives up interest rates. This trend can lead to a phenomenon known as crowding out, where private businesses find it too expensive to borrow and invest, potentially slowing broader economic growth.

Exceeding the Threshold

The report indicates that Kenya’s debt now represents 67.8 percent of its Gross Domestic Product. This figure significantly exceeds the 55 percent limit previously established by Parliament. The primary drivers for this increase include the need to fund budget deficits and the requirement to service interest on existing loans.

For the 2025/2026 financial year, the government set an ambitious budget of Sh4.69 trillion. The education sector received the largest portion of these funds at Sh703.07 billion. Meanwhile, the sectors covering energy, infrastructure, and technology were allocated Sh534.63 billion to support their roles as economic catalysts.

Spending and Fiscal Management

Government spending rose sharply during this period, totaling Sh2.18 trillion compared to Sh1.76 trillion in the previous year. To manage immediate financial needs, the National Treasury frequently utilized Article 223 of the Constitution. This provision allows for emergency spending without prior parliamentary approval, provided the Treasury seeks retrospective authorization within two months.

A significant portion of this emergency funding, approximately Sh86.29 billion, was used for a sovereign bond buyback. This move was intended to manage long term liabilities and stabilize the national balance sheet.

Addressing Implementation Gaps

Despite the high levels of spending, the Controller of Budget noted several hurdles in effective budget execution. These include the slow adoption of automated procurement systems and the underutilization of funds earmarked for development projects. To improve efficiency, the report advocates for a fully integrated electronic procurement system. Such a move would streamline interactions between government entities and suppliers, ensuring that planned activities move forward without the delays that currently hinder national progress.