NAIROBI, Kenya – Taxpayers spent an extra Sh98.1 billion on domestic debt interest in the financial year ending June 30, 2025, as the government leaned more heavily on local borrowing amid elevated interest rates, a new report shows.
According to Controller of Budget (CoB) Margaret Nyakang’o, interest payments rose to Sh632.3 billion, up from Sh534.2 billion in June 2024 — the sharpest increase in over five years at 18.4 percent.
The amount eclipsed the Sh545.8 billion allocated to all development projects for the same period and was only Sh40 billion shy of the entire education sector budget.
“This reflects the growing burden of domestic borrowing, particularly short-term instruments, which exposes the government to refinancing risks in a high-interest-rate environment,” Nyakang’o warned in her report on the national budget for 2024/25.
Costlier Than Key Ministries Combined
The CoB noted that just four months — August, September, November 2024 and June 2025 — accounted for nearly half of the year’s interest costs.
Payments in these months alone hit Sh301 billion, more than the combined allocations for seven ministries including roads, housing, agriculture, energy and transport (Sh281 billion).
Overall, domestic debt service reached Sh992.4 billion, with interest payments making up two-thirds, compared to Sh360 billion for principal repayments.
Interest costs outpaced principal by 75 per cent, highlighting the pressure of rising rates.
Debt Trap Warnings
Nyakang’o cautioned that the government’s reliance on local borrowing could tighten fiscal space, forcing cutbacks on development and recurrent expenditure.
“Unchecked borrowing could lead to a debt trap and limit resources for other national priorities,” she said.
Kenya’s total public debt climbed to Sh11.7 trillion by June 2025, up Sh1.14 trillion from the previous year.
Domestic debt now makes up 54 percent of the total, growing by 17 percent (Sh920 billion) to Sh6.3 trillion. External debt, by contrast, grew just 4 per cent to Sh5.37 trillion.
Treasury bonds account for the bulk of the debt (Sh4.63 trillion), followed by treasury bills (Sh615.9 billion).
The share of short-term bills rose from 11.4 percent of domestic debt in June 2024 to 15.9 percent a year later, underlining growing refinancing risks.
Spending Squeeze
The surge in debt servicing has squeezed development financing and now consumes a much larger share of revenues.
Domestic debt service has more than doubled in five years as a share of government revenues, from 20 percent in 2020 to 43.6 percent in 2025, according to the CoB.
The findings add pressure on the Treasury to rebalance its borrowing strategy and ease the cost of financing, amid concerns that rising interest obligations could crowd out spending on public services and infrastructure.
