Kenya's Public Debt Evolution and Associated Risks
Rising concerns about Kenya's growing foreign debt commitments
Kenya's public debt has grown significantly over the past decade, reaching a record high of approximately KSh 11.5 trillion by May 2025. This growth is driven by persistent fiscal deficits, averaging 7.1% of GDP, and increasing reliance on domestic markets for financing.
The debt-to-GDP ratio stands at about 67.4% in late 2024 and is expected to edge towards 71% in 2025. Debt servicing consumes over 60% of ordinary government revenue, indicating high fiscal pressure and an elevated risk of debt distress.
Growth Drivers
Kenya's persistent fiscal deficits have driven debt accumulation. Government expenditures have grown faster than revenues, with expenditures rising at a 7.0% CAGR compared to revenues at 5.9%.
Debt Composition
Domestic debt dominates, with Treasury Bills increasing sharply to over KSh 1 trillion by mid-2025. This reflects refinancing pressures and short-term borrowing reliance. Treasury Bonds remain the larger portion but are growing more slowly.
Off-Balance-Sheet Debt
The government uses innovative financing mechanisms like infrastructure bonds issued through special-purpose vehicles (SPVs) to fund projects. While these avoid direct borrowing limits and parliamentary scrutiny, they add quasi-public liabilities that increase debt risks in less transparent ways.
Debt Sustainability Concerns
The debt service to revenue ratio stood at 67.1% as of May 2024, which is significantly high and points to fiscal pressure. Kenya's debt-to-GDP ratio exceeds the IMF's recommended 50% threshold for developing countries by a wide margin, constraining its borrowing space and increasing vulnerability to shocks.
Fiscal Risks
Heavy reliance on short-term debt instruments like T-Bills exposes Kenya to refinancing risk and potential increases in borrowing costs, as shown by the rising yields in 2025. Economic challenges, including slow export growth and high credit costs, compound repayment difficulties.
In summary, Kenya's public debt has grown rapidly in recent years, fueled by financing needs from fiscal deficits and infrastructure investment, increasingly relying on domestic markets and innovative, less transparent debt instruments. This evolving debt profile poses risks of debt distress, rising financing costs, and fiscal inflexibility, underscoring the need for improved revenue mobilization and cautious debt management.
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- President William Ruto is facing increasing political pressure due to a spate of deadly protests against his administration in recent months.
- Nigeria is facing an unprecedented hunger crisis following cuts to USAID on which humanitarian programs relied. As many as 31 million people face acute food insecurity in Nigeria.
- President Emmanuel Macron has recognized the state of Palestine, becoming the first G7 nation to do so.
- Famine-like conditions are gripping Gaza.
- The European Commission president warned Chinese leader Xi Jinping that ties between the European Union and China were at an "inflection point."
- US President Donald Trump unveiled an "AI Action Plan" that prioritizes deregulation in a bid to better compete with China.
- Fitch has flagged the ongoing risks of high public debt, putting Nairobi's long-term foreign currency issuer default rating at B-.
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- Clashes between Thailand and Cambodia killed one soldier and 11 civilians, including a child, as tensions at the border boiled over.
- Ukrainian President Volodymyr Zelenskyy's move to undercut the independence of the country's anti-corruption agencies has sparked a political crisis that could hurt Kyiv's hopes of joining the European Union.
- The European Central Bank maintained its benchmark interest rate at 2%.
- Border clashes between Thailand and Cambodia could "move toward war."
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- Kenya has so far managed to avoid debt default.
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- The health-and-wellness industry in Africa could see significant growth, with the increasing number of e-sports players estimated to reach 350 million across the continent by 2024.
- The science and technology industry could be affected by the ongoing political crisis in Kenya, as fiscal inflexibility and pressure on government revenues might limit funding for research and development projects.
