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The Nairobian

No stopping debt binge as State borrows Sh440b in 7 months

Business

By Brian Ngugi | Mar 12, 2025

Committee on Appointments Vice Chair National Assembly Deputy speaker Gladys Boss Shollei (left) with committee member Samburu West MP Naisula Lesuuda at the Mini Chambers, County Hall, Nairobi. January 14th,2025. [Elvis Ogina, Standard]

The Treasury has revealed that the Kenya Kwanza government borrowed a staggering Sh440 billion over the past seven months, pushing the total stock of public and publicly guaranteed debt to Sh11.02 trillion as of January 2025.

According to the Public Financial Management (PFM) framework, Kenya must meet a threshold of 55 per cent (+5 per cent) of GDP by 2028, but this concerning number now represents 65.7 per cent of GDP, well above that threshold.

Information about this quickly growing debt was revealed at a recent meeting of a special Parliamentary Committee that examined the country’s financial situation.

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“The committee was informed that the current stock of public and publicly guaranteed debt stands at Sh11.02 trillion (65.7 per cent of GDP) as of the end of January 2025, up from Sh10.58 trillion in June 2024,” stated the report signed by Gladys Boss Shollei, the committee’s chairperson.

This debt is broken down into Sh5.09 trillion in external debt and Sh5.93 trillion in domestic debt. Treasury attributed the decline in external debt—from Sh6.09 trillion in December 2023—to the appreciation of the Kenyan shilling against major global currencies during the review period.

As of January 2025, multilateral debt constituted a significant portion of the external debt, amounting to Sh2.83 trillion (55.6 per cent).

Notably, concessional loans from the World Bank represented 63.3 per cent of this multilateral debt. Bilateral debt accounted for Sh1.09 trillion (21.4 per cent), with China emerging as the largest contributor, supplying 60.6 per cent of this category.

Additionally, commercial debt reached Sh1.17 trillion (23 per cent), including Sh0.85 trillion sourced from Eurobonds.

This diverse mix of debt underscores the government’s continued reliance on international financing to support its development initiatives.

On the domestic front, the government has accrued Sh4.93 trillion (83.3 per cent) in Treasury bonds, while Treasury bills accounted for Sh0.86 trillion (14.4 per cent).

Other domestic debt, which includes an overdraft from the Central Bank of Kenya and the International Monetary Fund (IMF) funds on-lent to the government, amounted to Sh0.14 trillion (2.3 per cent).

The stock of guaranteed debt stood at Sh79.6 billion at the end of January 2025, a notable reduction from Sh170.2 billion at the end of June 2023. This decrease was largely attributed to the novation of Kenya Airways’ debt, which has been a focal point in discussions about the sustainability of government guarantees.

In the fiscal year 2021-22, guarantees extended to Kenya Airways were called due to loan payment defaults, involving loans of $525 million (Sh67.7 billion) for the acquisition of aircraft backed by the Private Export Funding Corporation (PEFCO) of the US, along with guarantees from the Exim Bank of the US and the Kenyan government.

As cash flow challenges continue to plague State-owned enterprises, the government faces mounting pressure to manage its debt levels more effectively.

In response, Parliament has expressed deep concern regarding the soaring public debt, issuing a stark warning alongside a series of urgent recommendations aimed at restoring fiscal stability. The committee’s report highlighted several critical issues, including the escalating costs associated with domestic borrowing, a lack of coherence between fiscal deficit financing strategies, and the rapidly increasing debt service obligations.

Projections indicate that these obligations could soar to Sh2.47 trillion by June 2027, severely limiting the government’s fiscal flexibility for essential expenditures.

To mitigate these challenges, the committee urged the National Treasury to publish quarterly reports detailing progress on fiscal consolidation.

They also called for the full automation of debt service payments from the Consolidated Fund by May 31, 2025, alongside the integration of the Public Debt Management System with the Integrated Financial Management System by the same date to enhance transparency and accountability.

Furthermore, the committee recommended the deployment of the Treasury Single Account for all Ministries, Departments, and Agencies (MDAs), parastatals, and public funds by July 1, 2025, to mitigate risks related to domestic debt interest payments. The establishment of clear criteria for assessing the effective utilisation of borrowed funds is also needed, the committee said, along with the formation of an interagency committee to review the public debt procurement process.

As Kenya navigates these financial challenges, the government’s ability to implement these recommendations, analysts say, will be critical in achieving fiscal sustainability and ensuring economic growth is not hampered by excessive debt burden.