Ruto's appetite for debt shows no signs of slowing

President William Ruto's government is turning to China, Japan and international bond markets for fresh billions. [File, Standard]

Former President Uhuru Kenyatta left a debt legacy of about Sh9 billion after his 10-year tenure having inherited a burden of Sh6.7 billion from his predecessor, Mwai Kibaki. 

Since he took over in October 2022, President William Ruto has already surpassed the Sh13 trillion mark amid pressure to shift from deficit and borrowing-anchored budget making.

This is at a time when interest payments are consuming more than a third of all taxes collected.

And now the Ruto government is turning to China, Japan and international bond markets for fresh billions amid crucial warnings that the headroom for more borrowing is closing.

This is a high-stakes gamble that will leave the next government with a crushing burden and ordinary Kenyans paying the price for years to come, fiscal watchdogs say.

By August 2027, when Kenyans go to the polls, the country's debt-to-GDP ratio is projected to hit 72.4 per cent, according to International Monetary Fund forecasts up from 67.8 per cent a year earlier.

This is well above the statutory 55 per cent ceiling. Every man, woman and child in Kenya is projected to effectively owe about Sh260, 000, up from roughly Sh240,000 today. 

The John Mbadi-led National Treasury's latest borrowing plan, detailed in the Draft 2026 Budget Review and Outlook Paper, reads like a world tour of debt markets.

Over the next 12 months, the Government plans to issue an inaugural "Panda bond" in China worth US$300 million (about Sh39 billion).  

These are bonds sold by foreign entities in China, denominated in the Chinese yuan, allowing Kenya to tap into the pockets of Chinese investors rather than borrowing directly from the Chinese government. 

At the same time, the Ruto administration plans to borrow $500 million (Sh65 billion) through "Samurai bonds" in Japan which are yen-denominated bonds issued in Tokyo by non-Japanese entities, giving Kenya access to Japan's deep and low-interest capital markets. 

In addition, it plans an $815 million (Sh105 billion) Eurobond in the second quarter of the 2026/27 fiscal year Kenya's traditional route of borrowing in US dollars from international investors but also advance a $1 billion (Sh129 billion) debt-for-food security swap with the United States.  

These swaps allow a country to buy back its own debt at a discount, with the savings redirected toward agreed development goals in this case, food security and agricultural resilience. 

"Net external financing is projected at Sh247.2 billion (1.2 percent of GDP)," the Treasury document states, while domestic borrowing is set to explode.  

The Treasury now expects to borrow Sh1.04 trillion from local markets in 2026/27 up from Sh898 billion projected just two months ago. That is roughly Sh3.5 billion every single day. 

The 2026 Budget Review and Outlook Paper, released this month, lays bare the scale of the crisis.  

The timing could not be worse. With the General Election scheduled for August 2027, the Ruto administration faces intense pressure to deliver economic relief. But the fiscal math leaves little room for maneuver, experts say.

The Treasury itself has already cautioned that the budget deficit could widen by Sh143 billion to Sh1.288 trillion, driven by higher interest payments and potential tax cuts ahead of the polls.  

The government has ruled out fresh tax hikes since deadly protests in 2024 forced Ruto to withdraw a controversial IMF-backed finance bill. 

Without new taxes, without an IMF deal talks remain frozen over a dispute on how to classify Kenya's debt and without time, the government is left with one option, borrow more, data and projections show.

By August 2027, whoever wins the election will inherit a debt stock approaching Sh14 trillion, the data shows. Interest payments will consume an even larger share of revenue. The IMF has warned that debt could hit 72.4 percent of GDP by 2028. 

The government's own Debt Sustainability Analysis shows that Kenya remains at "high risk of debt distress." The present value of total debt-to-GDP is projected to remain above the 55 per cent ceiling until at least 2029. 

In the financial year that ended in June, the government collected Sh2.59 trillion in ordinary revenue but spent Sh3.29 trillion on recurrent expenses alone.  

The fiscal deficit in FY 2025/26 was financed through net domestic financing of Sh983.7 billion (5.3 percent of GDP) which was above target by Sh93.0 billion.

The net external financing amounted to Sh267.3 billion (1.4 percent of GDP), representing a shortfall of Sh116.7 billion from target. 

This financial year, interest payments on domestic debt alone are projected to hit Sh1.03 trillion, up from Sh986.7 billion estimated in June. 

Development expenditure the money that builds roads, hospitals and schools was just Sh731.5 billion, barely a quarter of total spending.  

For every shilling the government spends, about 40 cents goes to interest payments. Less than 20 cents goes to building anything new. 

"The impact is that we must keep borrowing in order to stay afloat," Controller of Budget Margaret Nyakang'o told Parliament recently. "A wish for us not to borrow may not be feasible at this time." 

For the average Kenyan, the debt spiral translates into a daily squeeze according to the Controller of Budget and Auditor General.

When Sh1.03 trillion goes to interest payments, that is money not available for healthcare, education or roads.  

The government has already signaled it may cut income taxes by Sh78 billion a popular move ahead of elections but this will widen the deficit and require even more borrowing. 

The cost of borrowing is also pushing up interest rates. When the government needs to borrow Sh1.04 trillion from local banks, it crowds out lending to businesses and households, bankers and economists say.  

That means higher loan rates for small businesses, higher mortgage rates for families, and less credit available for farmers and traders. 

Inflation, already at 6.5 per cent in July, remains under pressure from the government's borrowing needs.  

Every new bond issue, every fresh loan, adds to the money supply and fuels price increases. For families already struggling with food and transport costs, the debt burden translates directly into higher prices at the market and the petrol pump, analysts say.