Kenya to spend nearly half of budget on debt servicing

The National Treasury’s budget estimates show that the government plans to spend roughly the same amount on debt servicing as it did in the 2025/26 financial year. [Fiile, Standard]

Nearly half of the 2026/27 budget will be allocated to debt servicing, with taxpayers expected to cover Sh2.3 trillion in interest payments and debt redemption.

According to the National Treasury’s budget estimates, the government plans to spend roughly the same amount on debt servicing as it did in the 2025/26 financial year.

In addition, projections indicate that interest payments on domestic debt could rise to Sh1 trillion by 2030, signifying a growing pressure on the private sector as the government shifts to local borrowing.

The documents illustrate that Sh2.3 trillion was spent on interest payment and redemption in 2025/26 after the supplementary budget revised the initial Sh1.9 trillion upwards.

 In the 2026/27 estimates, the plan is to spend the same amount for interest and redemption. Redemption is when the government retires a bond or bill or pays up the principal of a debt owed. 

From the estimates, the government expects to spend Sh267.5 billion up from Sh242.8 million in interest payment to external debt obligations. It will spend Sh986.7 billion in interest payments to internal debts, specifically bills and bonds.

 Interest on public debt in the period then amounts to Sh1.3 trillion. 

At the same time, the government will be spending Sh648.8 billion in internal debt redemption in 2026/27 and another Sh412.9 billion in external debt redemption.  This comes Sh1.1 trillion. 

Total amount slated to be spent on public debt then becomes Sh2.3 trillion for the 2026/27 period. 

Considering the upcoming budget is estimated at Sh4.8 trillion, this means 47.9 per cent of the said budget will be used to either retire debts by paying principal or meeting the interest payment obligations. 

Kenya’s debt stock currently stands at Sh12.8 trillion. 

National Treasury notes in the budget documents that it paid up 100 per cent of maturing serviceable public debt in the 2022/23, 2023/24 and 2024/25 period. 

In the 2026/27 period, the Cabinet Secretary John Mbadi-led ministry states that it will continue keeping an eye on debt figures by adhering to quality audit standards and statutory timelines. 

“The audit environment is also rapidly evolving, with increasing demand for audits that address emerging issues such as Environmental, Social, and Governance factors, public debt sustainability, climate change, and digital transformation,” says the National Treasury in the budget documents.

“To meet these expectations, the office will continue to expand the Citizen Accountability Audit services to the public for improved service delivery.” 

Prudent debt management has been emphasised in the Budget Policy Statement 2026, the document that anchors the 2026/27 budget taking into account related costs. 

“These comprise the annual debt redemption cost as well as the interest payment for both domestic and external debt,” it says. “The allocation for payment of public debt related costs is expected to increase from Sh1.4 trillion allocated in FY 2025/26 to Sh1.5 trillion allocated in the FY 2026/27, reflecting an increase of Sh56 billion.” 

The policy states that the priorities of the Bottom-up Economic Transformation Agenda (BETA) among them agricultural transformation and human capital development aim to ease the debt burden. 

“This approach is intended to slow the pace of public debt accumulation, strengthen debt sustainability, and support the implementation of a proactive liability-management framework,” the policy document reads. 

It also emphasises on fiscal consolidation efforts to prioritise domestic revenue mobilisation, rigorous expenditure optimisation and reprioritisation, and protection of essential government programmes and social interventions. 

“The government remains firmly committed to narrowing fiscal deficits over the medium term to contain the growth of public debt and safeguard fiscal sustainability,” it states. 

Estimations by the National Treasury show that debt service expenditure will reach Sh2.8 trillion in 2030 with Sh1.3 trillion redemption and Sh1.5 trillion as interest payments. 

This Sh3 trillion obligation is a result of the Sh195 billion ($1.5 billion) Eurobond issued in 2024 to partially relieve the country of another matured Sh260 billion Eurobond issued earlier in 2014 that threatened the stability of the shilling. 

Kenya’s reliance on domestic borrowing to finance its budget has been increasing over the years as the external sources shrink due to reduced fiscal space to accommodate foreign currency loans or the country’s low-middle income status that denies it cheap credit compared to low-income markets. 

In the upcoming 2026/27 budget, Kenya will borrow in excess of Sh995 billion from the domestic market, which is higher than what was indicated in the policy statement. 

“The FY 2026/27 fiscal deficit will be financed through net external borrowing amounting to Sh225.5 billion (1.1 per cent of GDP) and net domestic financing of Sh890.4 billion (4.2 per cent of GDP),” the policy statement says.