NAIROBI, Kenya – Kenya’s growing debt obligations are eating into funds meant for development and critical public services, the Controller of Budget (CoB) Margaret Nyakang’o has warned.
In the National Government Budget Implementation Review Report for the 2024/25 financial year, Nyakang’o revealed that the government spent Sh1.05 trillion servicing domestic debt, a figure that now overshadows allocations for capital projects.
Of this amount, Sh632.3 billion went to interest payments while Sh360.1 billion was used to repay principal amounts.
“The total domestic debt service was Sh992.39 billion, comprising principal repayments of Sh360.09 billion and interest payments of Sh632.30 billion,” Nyakang’o stated.
Reliance on costly short-term loans
The report shows that Kenya has increasingly turned to short-term Treasury bills—91-day, 182-day, and 364-day papers—to plug budget deficits.
These instruments carry high interest rates, significantly raising the cost of borrowing.
As a result, new loans are largely being used to pay interest on older debt, leaving little fiscal space for development programmes.
Domestic debt now stands at Sh6.33 trillion, up 17 per cent from the previous year, compared to a modest 4 per cent rise in external debt to Sh5.40 trillion.
Development squeezed
Out of Sh1.7 trillion spent on debt in 2024/25, domestic repayments absorbed Sh992.4 billion. By contrast, capital projects received only Sh90.4 billion, a fraction of what was needed to push through key infrastructure, healthcare, and education initiatives.
Meanwhile, pending bills ballooned to Sh524.8 billion by June 2025, worsening cash-flow challenges for contractors, suppliers, and SMEs.
Nyakang’o noted that commercial banks now hold 42.6 per cent of domestic debt, making them central to government financing.
“Any reduction in exposure or demand for higher returns could further increase borrowing costs,” she warned.
IMF threshold breached
The report also shows that debt service consumed 55.5 per cent of total revenues in 2024/25—nearly double the 30 per cent ceiling recommended by the IMF.
This, the Controller of Budget cautioned, risks trapping the government in a cycle where resources are diverted from service delivery to debt repayment.
“Unless Kenya reassesses its reliance on high-cost, short-term debt instruments, financial pressure on development projects will worsen, threatening the delivery of essential services and slowing progress across key sectors,” the report concludes.
