'Eurobondage': How Kenya dug itself into a cycle of borrowing

When Kenya issued its first Eurobond in 2014, economists warned that the country risked entering into a trap that, at best, would keep it treading water for decades, and at worst, dig it deeper into a debt hole over the years. 

True to those warnings, once dismissed as pessimism, Kenya has repeatedly returned to the market, issuing more Eurobonds to repay maturing debts, sometimes at higher interest rates than the original loans. This has continued despite Treasury assurances that it would steer away from commercial loans in favour of concessional debt, which offers lower interest rates and longer repayment periods.

Last week, the National Treasury borrowed $2.25 billion to repay two Eurobonds, one maturing in 2028 and another in 2032. This marks the fourth time in three years that the government has issued a Eurobond to buy back previous Eurobond debts and other expensive commercial loans. Treasury says the strategy is critical for preventing defaults on maturing obligations and extending repayment dates, a process it terms “liability management.”

Last week’s Eurobond was issued in two tranches: Sh900 million (Sh116 billion) at a 7.8 per cent interest rate, maturing in 2034 and $1.35 billion (Sh174 billion) at 8.7 per cent, maturing in 2039.

Among those who had foreseen the addictive nature of Eurobonds was David Ndii, then a sharp critic of the Jubilee administration. In a 2014 article, he predicted a future scenario where Kenya would have to issue new Eurobonds to repay maturing ones, potentially locking the country into a permanent debt cycle.

Ndii, now serving as an advisor to President Ruto, has cautioned Kenya to learn from Ghana, where rapid debt accumulation could become a serious economic burden in the coming years.

In 2014, the Parliamentary Budget Office (PBO) also warned against heavy reliance on commercial borrowing, advocating instead for concessional loans. The parliamentary think tank noted that commercial debts could trap Kenya into a cycle of refinancing due to high interest rates and short repayment terms. It noted that the 2014 Eurobond required a lump-sum repayment, posing great liquidity risks and the danger of a debt trap if the funds were not invested in high-return projects.

After Kenya issued its first Eurobond in 2014, it returned to the market in 2018, 2019 and 2021, initially borrowing for infrastructure development and budgetary support. Over the last three years, however, the government has increasingly borrowed to repay maturing debts.

On Friday, the National Treasury said last week’s Eurobond “attracted strong, high-quality demand with the order book greatly exceeding the offered amount.”

“The proceeds will be used to refinance existing public debt obligations, including the government’s tender offer to purchase up to $150 million (Sh19.4 billion) of the outstanding 7.25 per cent notes due in February 2028 and up to $350 million (Sh45 billion) of the outstanding 8 per cent notes due in May 2032, inclusive of accrued interest. Any remaining proceeds will support general budgetary needs,” the Treasury statement said.

The Treasury added: “The issuance aligns with the government’s strategy to smoothen the maturity profile of Kenya’s external debt and proactively manage public debt liabilities. It also reflects improving investor confidence following Moody’s recent upgrade of Kenya’s sovereign rating to B3 from Ca1, with a stable outlook due to reduced default risks, stronger foreign exchange reserves and a narrower current account deficit.”

The Treasury describes these new Eurobond issuances and buybacks as strategic measures to ease future repayments by lengthening repayment periods. However, analysts note that these new debts have sometimes come at higher costs than the maturing loans they replace.

“This Liability Management Operation (LMO) was a strategic move to smooth the country’s debt maturity profile, spreading repayment obligations and reducing immediate refinancing risks,” said the Treasury.

Despite this, the government reaffirmed its medium-term debt strategy, emphasizing borrowing from concessional lenders whose loans carry relatively low interest rates and generally friendlier terms, including longer repayment periods and grace periods during which principal repayment is not required.

“External financing will remain focused on concessional and semi-concessional facilities from multilateral and bilateral partners, while commercial borrowing will be limited to liability management operations and priority projects that cannot secure concessional funding but align with the national development agenda,” the Treasury added.

However, Kenya’s external commercial debt stock continues to rise. Over the last financial year, it grew 11.5 per cent to Sh1.313 trillion as of June 2025, up from Sh1.178 trillion. International sovereign bonds account for a large portion of this commercial debt, totaling Sh1.022 trillion in June 2025—a nearly 20per cent increase from Sh854.88 billion in June 2024.

Kenya’s debt stood at Sh12.299 billion in December 2025, according to the latest data on debt by the Central Bank of Kenya (CBK). Other than the eternal commercial debt that has been accelerating, local borrowing has also risen significantly in the recent past. 

According to the data, the government’s borrowing from local lenders increased by nearly Sh1 trillion last year, reaching Sh6.837 trillion as of December from Sh5.868 trillion a year earlier.