Kenya’s public debt has crossed the Sh12 trillion mark, hitting 12.06
trillion in September 2025, according to the latest National Treasury data.
This pushed the total public debt burden to 67.3 per cent of the country’s Gross Domestic Product (GDP), with domestic debt at Sh6.66 trillion (37.2 per cent of GDP) and external debt at Sh5.39 trillion (30.1 per cent of GDP).
This translates to a year-on-year increase of Sh1.26 trillion to Sh10.8 trillion in September 2024.
The debt-to-GDP ratio rose slightly from 66.5 per cent to 67.3 per cent, indicating that nominal GDP growth was largely keeping pace with borrowing.
Latest data shows that the country has added at least Sh250 billion to its debt burden in three months from June to September, driven by a Sh340 billion rise in domestic borrowing while external debt declined by about Sh80 billion.
This is a classic shift in government financing model, tilting toward President William Ruto’s promise to cut on expensive external loans that carry forex exchange pressures.
Kenya’s increased dependence on local markets began in earnest in fiscal year 2022/23, when the country faced a $2 billion Eurobond maturity amid a tight global credit environment, rising interest rates, and a depreciating shilling.
Like many emerging markets, Kenya struggled to access affordable external financing, making domestic markets the default option.
While the National Treasury boss, John Mbadi, has hailed the inward-looking as more sustainable, economic experts think that local debt is more expensive.
According to a report by the Institute of Economic Affairs (IEA), Kenya paid an interest of up to 19 per cent on domestic bonds in the past financial year, almost three times more compared to a commercial external loan.
“There is a false notion that local debt is cheaper. In fact, it is almost 3-4 times higher compared to multilateral and external commercial loans whose rates average between four and eight per cent on the higher side,’’ the report reads.
Economists from the institute say that even though yields on T-Bills and bonds have since dropped to an average of eight to 13 per cent, they are still higher compared to external loans.
They are in support of a feasible public-private partnership funding model, especially for capital-intensive infrastructure projects.
Findings by the Controller of Budget, Margaret Nyakang’o, show that in the financial year 2024-25, debt service on domestic obligations hit Sh1.05 trillion, driven by a surge in short-term Treasury bills.
Out of this, Sh632.3 billion went to interest payments, while only Sh360.1 billion was used to reduce principal loan amounts.
The report by the exchequer in the past three months shows that Treasury bonds accounted for 83 per cent of domestic securities, while Treasury bills accounted for 17 per cent.
Commercial banks remained the largest holders, followed by pension funds and insurance companies.
Borrowing conditions in the domestic market eased substantially. The 91-day Treasury bill rate fell from 15.8 per cent in September 2024 to 7.9 per cent in September 2025.
Multilateral lenders accounted for 56.7 per cent of external debt, up from 54.9 per cent a year earlier; bilateral debt declined to 18.5 per cent, while commercial external debt accounted for 23.4 per cent.
Kenya reduced its exposure to USD-denominated obligations, with the share of external debt in US dollars falling from 62.1 per cent to 52 per cent.
The euro share rose from 25.5 per cent to 27.9 per cent, indicating currency diversification.
External debt service in the review period totaled Sh97.4 billion, including Sh74.9 billion in principal and Sh22.6 billion in interest.
