Kenya’s escalating debt burden: Are we near the fiscal cliff?

Kenya’s debt load is rising faster than the economy can comfortably carry, and experts warn the country is edging dangerously close to a point where debt repayments will severely limit public spending.

While government projections point to gradual improvement, the reality on the ground shows a narrowing fiscal space and tough choices ahead.

The cost of servicing Kenya’s public debt has ballooned, swallowing almost two-thirds of government revenue. This year alone, debt repayments will account for about 68 per cent of all taxes collected, more than double the level the IMF recommends for countries to maintain fiscal stability.

Kenya’s total public debt now stands at around 70 per cent of GDP, estimated at Sh11.5 trillion.

The Treasury’s 2025 Medium-Term Debt Strategy places the present value of debt at 63 percent of GDP, far above the sustainability threshold of 55 per cent.

Government projections show the debt-to-GDP ratio falling to 52.8 percent by 2027/28. 

The plan hinges on shifting borrowing towards longer-term domestic debt, reducing reliance on external loans and tapping into new instruments such as diaspora bonds, ESG-linked financing and concessional credit.

A significant chunk of this year’s repayments is tied to loans for mega infrastructure projects. In July, the government spent Sh68.7 billion on external debt service alone, with the bulk going towards payments to China for the Standard Gauge Railway (SGR) loans contracted in 2014 and 2015.

According to World Bank data, payments to China this year stand at Sh55.8 billion: Sh37.66 billion in principal and Sh15.6 billion in interest.

SGR-related costs accounted for more than 80 percent of July’s external debt outlay.

Other major obligations include interest on the 12-year Eurobond floated in 2021, which costs Sh 3.88 billion every six months, and repayments to the Eastern and Southern African Trade and Development Bank and France, at Sh2.57 billion and Sh2.4 billion respectively.

Heavy debt servicing leaves less money for essential public services like healthcare, education and food security.

Economists caution that if debt payments continue to outpace revenue growth, future budgets will have little room for investments that directly benefit the majority of citizens.

The government has promised fiscal consolidation, cutting unnecessary spending, improving tax compliance, and avoiding fresh tax hikes after last year’s protests over the controversial Finance Bill. But analysts say these measures face serious implementation hurdles.

“Despite government attempts to tighten expenditure, I think we are still going to have a significant funding shortfall,” says John Kuria, a tax specialist.”

“The challenge lies in execution. We often see ambitious budget targets revised mid-year, which undermines fiscal credibility,” adds Shani Smit-Lengton, a senior economist with Oxford Economics Africa.

The World Bank further warns that interest payments alone now consume about a third of tax revenue, a clear indicator that Kenya remains at high risk of debt distress.

Kenya’s struggle mirrors a wider trend across Africa, where several countries are spending more on debt service than on health or education.

In 2025, African nations are expected to pay close to US$89 billion in external debt repayments. 

For Kenya, the World Bank projects that with sustained reforms, stronger revenue collection, controlled spending, and smarter borrowing, the debt-to-GDP ratio could fall to about 44 per cent by 2035, a level last seen a decade ago.

The government’s debt strategy is clear on paper: restructure obligations, prioritise cheaper financing, and protect development spending. But success will depend on political will, economic stability, and market confidence.

If the plan works, Kenya could slowly regain fiscal breathing space and redirect more resources to critical sectors.

If it fails, the debt trap will tighten, leaving future generations to bear an even heavier burden. For now, every shilling borrowed must be weighed against its long-term cost.

Because in the current climate, it’s not just about how much Kenya owes; it’s about how much the country can truly afford to pay without sacrificing its future.