Treasury says country's debt is sustainable

The National Treasury’s 2025 Debt Sustainability Analysis (DSA) has shown that Kenya’s public debt remains sustainable but with high risk of distress.

This is in accordance with the Medium Term Debt Management Strategy (MTDS) 2026/27 – 2028/29 tabled in Parliament last week, which also indicated that the Present Value (PV) of public debt stood at 65.3 per cent of Gross Domestic Product (GDP) at the end of last year.

As at end June 2025, the stock of public and publicly guaranteed debt stood at Sh11.8 trillion (67.8 per cent of GDP), equivalent to USD 91.42 billion in nominal terms. Of this, domestic debt was Sh6.3 trillion while external debt was Sh5.4 trillion.

“The 2026 MTDS is anchored on the macroeconomic assumptions outlined in the 2026 Budget Policy Statement. As per the 2026 BPS, over the medium term, economic growth is projected to remain at 5.3 per cent, supported by enhanced agricultural productivity, a resilient services sector, and ongoing implementation of priority programmes under Bottom-Up Economic Transformation Agenda,” the strategy states.

According to the National Treasury, domestic interest rates have declined in line with the easing of monetary policy by the Central Bank of Kenya, following a gradual reduction of the Central Bank Rate from 13 per cent in August 2024 to 9 per cent in December last year to support private sector credit uptake and economic activity.

The 2026 MTDS has been prepared in accordance with Section 33 (2) of the Public Finance Management (PFM) Act, and is formulated to guide management of Kenya’s public debt over the 2026/27-2028/29 period.

It outlines the strategies and initiatives aimed at minimising costs at a prudent degree of risk over the medium term.

According to National Treasury, the 2026 MTDS aims at reducing public debt costs and risks by sourcing 18 per cent gross borrowing from external sources and 82 per cent from domestic sources over the medium term.

The Ministry of Finance and National Treasury has explained that, from the domestic sources, the strategy is to gradually reduce the stock of Treasury Bills while lengthening debt maturity by issuance of medium to long term debt securities.

From external sources, the target is to mix concessional financing, new instruments such as guaranteed sustainability linked bonds and minimal commercial borrowing.

The current operational, institutional, legal and governance environment requires interventions to strengthen debt sustainability, fiscal resilience, and market credibility.

The key reforms envisaged include review of the Public Debt and Borrowing Policy to bring on board Liability Management Policy to guide and ensure that liability management operations are executed in line with the MTDS.

In the stock of public debt informing development of this MTDS, and in line with IMF and World Bank recommended best practice, public debt excluded uncalled guaranteed debt amounting to Sh83.24 billion, and Sh67.63 billion in government overdraft at CBK.

It also excluded Sh14.42 billion in suppliers credit, Sh80.56 billion from IMF special drawing rights allocation and Sh14.79 billion commercial banks advances.

“External public debt comprises those sourced from multilateral, bilateral, commercial creditors and external performing guarantees while domestic debt comprises Treasury bonds, Treasury bills, Pre-1997 Government debt, CBK Overdraft, bank advances and IMF SDR allocation. As a proportion of total external debt, multilateral debt accounted for 55.5 per cent,” the National Treasury explains.

Domestic debt with maturity of four to 10 years was 34.2 per cent, as at the end of June 2025.

The proportion of instruments with less than one year to maturity increased to 21.6 per cent as at end June 2025 from 18.6 per cent as at end of June 2024 and this is attributed to uptake of short-term instruments.

Additionally, the proportion of instruments with maturity of between two and three years as at end June 2025 increased to 23.1 per cent from 13.5 per cent as at end June 2024. However, the proportion of instruments with maturity of above 11 years as at end June 2025 decreased to 21.1 per cent from 22.2 per cent as at end June 2024 due to uptake of short-term debt.

The MTDS has also indicted that the redemption profile shows 18.2 per cent of domestic debt will mature by end June 2026, mainly due to a large share of short-term (Treasury bills) government securities falling due during the year.

Overall, the repayment schedule is bunched up in the medium term due to large share of near-term maturities treasury bonds, international sovereign bonds and syndicated loans.

With respect to gross borrowing, the strategy anticipated a split of 75 per cent domestic and 25 per cent external.

In contrast, actual borrowing resulted in an 82:18 ratio of gross domestic to gross external financing.

Focus will now be on traditional sources of funding while exploring frontier diversification sources, thus target funding sources will include primary sources in domestic and external markets for deficit financing, including issuance of Treasury Bonds and Treasury Bills for cash management purposes in the domestic market international bond issuances.