Public Debt Crosses Sh12 Trillion as Government Deepens Shift to Domestic Borrowing

Kenya’s public debt has surged past the Sh12 trillion mark for the first time, signalling a critical moment for the country’s fiscal management and sparking renewed debate over the government’s borrowing strategy. According to the latest figures from the National Treasury, total public debt rose to Sh12.06 trillion by September 2025—equivalent to 67.3 percent of GDP. The increase reflects a deliberate turn toward domestic borrowing, which now accounts for a larger share of the country’s debt portfolio as the government seeks to reduce exposure to volatile global markets and foreign exchange risks.
The latest data shows that Kenya added Sh1.26 trillion in debt within a year, driven largely by an aggressive accumulation of domestic loans. Between June and September alone, the government borrowed an additional Sh250 billion, with all new obligations sourced locally. Analysts note that this pivot became more pronounced following the 2022/23 Eurobond crisis, when Kenya struggled to access affordable international financing amid rising global interest rates and a weakening shilling. This experience pushed policymakers toward a heavier reliance on local capital markets, where borrowing is technically more predictable but significantly more expensive. Treasury Cabinet Secretary John Mbadi has defended the approach as a path to economic sovereignty, but critics warn that local interest rates—often reaching double digits—are imposing a growing burden on taxpayers.
The consequences of this shift are already visible across Kenya’s fiscal landscape. Debt service on domestic loans reached Sh1.05 trillion in the last financial year, with interest payments consuming nearly two-thirds of that amount. Economists caution that this trend risks crowding out private sector credit, raising the cost of doing business and slowing economic recovery efforts. At the same time, declining Treasury bill rates and increased reliance on multilateral lenders signal early attempts to ease pressure on the budget. Looking ahead, experts argue that Kenya must strike a delicate balance between domestic and external financing while strengthening revenue collection and improving spending efficiency. Without meaningful reforms, they warn, the rising debt trajectory could limit the country’s ability to invest in development and place heavier obligations on future generations.