Debt default risks resurface as Kenya's public debt crosses Sh13 trillion

CS Treasury John Mbadi grilled by members over the legibility of public participation used regarding the importation of condemned raw sugar by MSRL when he appeared before the National Assembly's Trade Committee. [Elvis Ogina, Standard]

Kenya's public debt has crossed the Sh13 trillion mark for the first time, official figures show, as President William Ruto's government enters an election year with debt servicing consuming nearly three-quarters of revenue.

The latest Central Bank of Kenya weekly bulletin shows public and publicly guaranteed debt stood at Sh13.011 trillion at the end of June 2026, up from Sh8.7 trillion when President William Ruto took office in September 2022, an increase of roughly Sh4.3 trillion in just four years.

The new high comes just 15 months after the stock crossed Sh10 trillion in June 2023, an acceleration that has alarmed fiscal watchdogs.

Domestic debt now accounts for Sh7.327 trillion, while external debt stands at Sh5.685 trillion, a clear breach of the government's medium-term debt management strategy, which had aimed for a 50:50 split to mitigate exchange rate risks.

The true figure of Kenya’s public debt may be significantly higher, however.

The International Monetary Fund (IMF) has demanded that Kenya expand its definition of public debt to include pending bills, securitisation funds, and non-guaranteed loans by State corporations, a move that would add more than Sh1 trillion to the reported stock.

"The fund deems the arrears material, highlighting them as significant financial information that could influence the decision of stakeholders like investors and creditors," the IMF said in a technical report.

Kenya has resisted, with Treasury Cabinet Secretary John Mbadi arguing that securitised debt, where future tax revenues are pledged to fund infrastructure, should not be counted as sovereign debt. The government has securitised approximately Sh335 billion in tax revenues to support development projects.

The disagreement has frozen negotiations on a new IMF programme after the previous $3.6 billion deal expired in April 2025 without disbursing a final Sh109.8 billion tranche. Kenya had accessed Sh404 billion of the facility by March 2025.

The mounting burden is now strangling the budget. Controller of Budget Margaret Nyakang'o told Parliament that debt servicing is absorbing 71 per cent of all government revenue, leaving just 29 per cent to fund salaries, public services and development.

"The impact of that over-borrowing is that up to 71 per cent of the revenues that we collect goes to loan repayment," Nyakang'o said. "That leaves us with only 29 per cent to undertake all the other expenditures, including recurrent and development spending."

The debt service-to-revenue ratio stood at 70.1 per cent as of June 2026, more than double the IMF's 30 per cent threshold.

In the 2025/26 financial year, the government spent Sh1.72 trillion servicing debt. For 2026/27, the Treasury projects Sh1.9 trillion in debt service, including Sh1.3 trillion for domestic debt and Sh586.4 billion for external obligations.

Nyakang'o warned earlier that Kenya has no choice but to keep borrowing. "The impact is that we must keep borrowing to stay afloat. A wish for us not to borrow may not be feasible at this time," she told MPs earlier.

The government borrowed Sh416.2 billion in just the first four months of 2026, Sh3.47 billion per day, including a $2.25 billion dual-tranche Eurobond issued in February.

The seven new loans contracted between January and April included an International Sovereign Bond of Sh291.49 billion and affordable housing finance projects worth Sh61.5 billion.

The debt-to-GDP ratio has climbed to 70 per cent, well above the statutory 55 per cent debt anchor approved by Parliament. The IMF projects the ratio will rise further to 71.6 per cent in 2026 and 72.4 per cent in 2027.

The debt register reveals a significant shift in Kenya's creditor base. Multilateral debt grew 9.27 per cent year-on-year to Sh3.045 trillion, now accounting for 53.4 per cent of total external debt.

China's bilateral exposure has fallen to Sh615.36 billion, down Sh170.14 billion since September 2022, as Kenya has shifted toward multilateral and commercial sources.

International sovereign bonds now stand at Sh1.023 trillion, with the February 2026 Eurobond issuance alone adding Sh290 billion to the external stock. Commercial bank debt stands at Sh238.8 billion, while bilateral debt has declined to Sh1.041 trillion.

Since Ruto took office in September 2022, total debt has grown by Sh4.14 trillion, a 47.6 per cent increase, with domestic debt expanding 61.8 per cent. Debt has grown at roughly 1.5 times the pace of the economy.

With the general election scheduled for August 2027, the administration faces mounting pressure to deliver economic relief without raising taxes, a politically fraught option after deadly protests in 2024 forced Ruto to withdraw a controversial IMF-backed finance bill.

The Treasury has already projected a Sh1.15 trillion budget deficit for 2026/27, with the financing gap to be bridged largely through domestic borrowing. Yet domestic borrowing costs remain elevated.

Kenya's external buffers remain adequate for now; foreign exchange reserves stand at $15.245 billion, covering 6.3 months of imports. But with no IMF deal in sight and debt servicing consuming an ever-growing share of revenue, the fiscal outlook remains precarious.

"The high debt-to-GDP ratio is likely to persist due to the high current fiscal deficit of 6.4 per cent," Nyakang'o cautioned in her report.