NAIROBI, Kenya — The government more than doubled its domestic borrowing in July, raising Sh138.25 billion from the local market as it began implementing the 2026/27 financial year budget.
The amount was 105.5 per cent higher than the Sh67.26 billion borrowed in July 2025, according to the latest National Treasury fiscal outturn.
The sharp increase came as the government continued to finance its spending requirements and meet debt obligations. Public debt service stood at Sh113.75 billion during the month.
The heavier reliance on the domestic market means the government is likely to remain a major borrower within Kenya’s financial system, with potential implications for liquidity, interest rates and the availability of credit to businesses and households.
Treasury targets Sh918.1 billion in domestic financing
Treasury’s borrowing plan for the 2026/27 financial year targets Sh918.1 billion in net domestic financing, against a total fiscal financing requirement of Sh1.02 trillion.
The Sh138.25 billion raised in July represents about 15 per cent of the full-year domestic financing target.
However, borrowing is expected to fluctuate throughout the financial year depending on government cash requirements, debt maturities and the timing of Treasury bill and bond issuances.
Treasury plans to rely on short-term Treasury bills primarily to manage government cash requirements, while longer-term Treasury and infrastructure bonds will provide financing for broader budget needs.
The government also intends to deepen the domestic debt market through a pilot market-making framework and an electronic over-the-counter trading platform. Other measures include reopening existing bonds to improve market liquidity.
Government explores alternative borrowing sources
Beyond the domestic market, the government plans to explore additional financing options to meet its fiscal requirements.
These include sovereign bonds, Samurai bonds, Sukuk, sustainability-linked bonds and diaspora bonds.
The diversification comes as the government continues to face pressure from high debt-servicing costs and large debt maturities, which have increased the need for careful management of borrowing and refinancing requirements.
The elevated domestic borrowing also comes at a time when the government is seeking to balance debt obligations with expenditure on development and public services.
Tax revenue rises in July
Despite the increased borrowing, government revenue recorded stronger growth during the month.
Tax collections rose by 13.85 per cent year-on-year to Sh195.30 billion, providing additional resources to support government operations.
Recurrent expenditure stood at Sh142.81 billion, while development spending amounted to Sh29.33 billion during July.
The government also transferred Sh21.4 billion to county governments through the equitable share.
The July fiscal outturn provides an early indication of how the government is managing the competing demands of revenue collection, expenditure and debt financing at the start of the 2026/27 financial year.
With domestic borrowing already accounting for a significant share of the annual financing target, the pace and cost of subsequent borrowing will remain closely watched by investors, businesses and households as Treasury implements its fiscal programme.
