Kenya to spend Sh1.9 trillion on debt service

Kenya expects to spend nearly Sh2 trillion on debt repayments over the next financial year, exerting further pressure on the government.

According to budget estimates tabled in Parliament last Wednesday, the government will spend a total of Sh1.9 trillion in repayment of both domestic and foreign debts over the 2025/26 financial year, of which Sh1.097 trillion will be on interest payments as another Sh803 billion will be on debt redemption.

Debt servicing will gobble up a significant chunk of the money that the government expects to rake in through taxes, with ordinary revenues or money the Kenya Revenue Authority will collect through taxes over the next financial year expected to be in the region of Sh2.84 trillion. At Sh1.9 trillion, debt servicing will take 66.9 per cent of ordinary revenue, leaving the government with little to spend on essential services, including supporting the public wage bill.

Next year’s debt servicing is however lower than the Sh2.04 trillion that the government expects to have paid by the close of the current financial year that ends June 31.

Interest payments to local lenders will be substantially higher at Sh851.4 billion, an indication of Treasury’s high borrowing from the domestic market, particularly short term term loans through instruments such as Treasury Bills, that have a short maturity period, typically up to one year and attract higher interest rates. Interest payments to foreign lenders is projected to be at Sh246 billion.

The payments are a pointer to Kenya’s debt position that has been subject to arguments on its sustainability. As of December last year, Kenya’s public debt stood at Sh10.93 trillion, of which Sh5.868 trillion is from domestic sources and Sh5.057 trillion from external lenders.

National Treasury Cabinet Secretary John Mbadi has in the recent past painted a worrying picture of the country's debt situation, particularly the impact that the several Eurobonds that the country has taken are having on the country’s fiscal space. At a March briefing, Mbadi termed where Kenya finds itself as a “terrible situation”, noted that this was being seen not just in the size of the loans that are now maturing one after the other but also the high interest rates that they attract.

These are concerns that have been raised by not just Mbadi but also other institutions including the Auditor General but also civil society organisations and economists.

The government plans to borrow Sh831 billion over the 2025/26 financial year to plug the budget deficit. It expects to borrow Sh 684.2 billion domestically and Sh146.8 billion from foreign lenders.

Overall spending is expected to stand at Sh4.26 trillion funded through revenues made up of Sh2.835 trillion as ordinary revenues and Sh550.7 billion in ministerial appropriations in aid, and the difference to be financed through borrowing.

Among the notable expenditures planned for the year, Kenyans will fork out Sh2 billion for the repair and construction of infrastructure in foreign missions in the new budget set to take effect from July 1, 2025.

The billions are set to go towards the repair, renovation or purchase of Kenya’s ambassador’s residences, chanceries or properties across 21 different countries with questions abounding on the urgency in the simultaneous infrastructure development.

Expenditure estimates released by the National Treasury and tabled before the National Assembly reveal that under the Ministry of Foreign Affairs, the Infrastructure Development for Missions budget has been pegged at Sh1,958,300,000 for the 2025/2026 financial year and is set to increase Sh5.2 billion in the 2026/ 2027 financial year and later, to Sh5.15 billion in the 2027/2028 financial and election year.

The billions are to facilitate the upgrading and renovations of ambassador's residence in London, the construction and refurbishment of an office block in Mogadishu, the Construction of chancery in Islamabad, “Construction and Various Renovations in Pretoria”, Renovation of government owned properties in Washington DC, the renovation of ambassador’s residence in Dar-es-Salaam, Chancery renovation in Abuja and the Renovation of government owned property in Stockholm Sweden.

The alterations of chancery and security enhancement in Kampala, renovation of Embassy and Ambassador's residence in Beijing, the renovation of government owned properties in Kinshasa, Addis Ababa, New York, Lusaka, Harare and the purchase of Chancery offices for UN HABITAT/UNON will also take a significant portion of the budget.

Further the billions will cater for the purchase of Chancery in London, Renovation of Ambassador's residence in Berlin and the renovation and fencing of GoK owned property in Tokyo.

“Throughout the fiscal year 2025/26 and the medium term, the State Department will persist in executing priority programs aimed at enhancing foreign relations through regional and economic communities. This initiative will also focus on elevating Kenya's status as an anchor state, modernizing diplomatic infrastructure, and transforming Kenyan missions abroad into economic hubs,” read the estimates in part.

For the management of International treaties, agreements and conventions, Sh30.9 million has also been allocated for the undertaking in the 2025/26 financial year with the figure expected to increase to Sh40.29 million in the 2026/2027 year and to Sh52.38 million in the 2027/2028 fiscal year.

Notably, the Ministry of Foreign affairs allocation on expenditure in the coming 2025/2026 FY is Sh25,627,556,978 which is an increase from Sh 21,069,096,007 last year. The amount is set to increase to Sh33,958,201,838 in the 2026/ 2027 FY and to Sh 37,659,701,838 in the 2027/2028 election year.

According to Treasury, the State Department of Foreign Affairs has, in the period between 2021/2022 to 2023/2024, encountered significant challenges including foreign exchange losses, insufficient funding for programs, elevated rental costs for overseas missions, and the emergence of global conflicts and insecurity that jeopardized international stability. Consequently, the expenditure plan is part of a strategic budgetary allocation to mitigate foreign exchange losses and to safeguard its budget from austerity measures.