Government to Focus on Domestic Debt Market to Plug Budget Deficits
Kenya Shifts Borrowing Strategy
Kenya plans to rely more heavily on domestic borrowing in the medium term. The move aims to finance budget deficits while managing costs and risks more sustainably.
According to the Annual Public Debt Management Report 2026, released today, the government expects domestic markets to provide 82 per cent of gross borrowing, up from 75 per cent. External sources will account for the remaining 18 per cent.
Over the 2026/27 to 2028/29 fiscal years, the net borrowing mix will stand at 78 per cent domestic and 22 per cent external. This marks a clear shift from the previous Medium-Term Debt Strategy, which targeted a 65:35 domestic-to-external split.
Longer-Term Focus in the Domestic Market
Locally, the National Treasury plans to cut reliance on short-term Treasury bills. Instead, it will issue more medium- and long-term instruments. This approach will reduce refinancing risk and spread repayment obligations over a longer period.
At the same time, the government will pursue concessional and semi-concessional external loans. It will also limit exposure to commercial borrowing. In addition, Treasury is exploring new instruments such as sustainability bonds.
By the end of the strategy period, domestic debt will make up 60 per cent of public debt, up from 55 per cent last year.
Government to Focus on Domestic Debt Market to Plug Budget Deficits
External debt will account for the remaining 40 per cent. Gross external financing will comprise 10 per cent concessional loans, 2 per cent semi-concessional loans, and 6 per cent commercial borrowing.
Current Public Debt Position
By the end of June 2025, Kenya’s public and publicly guaranteed debt stood at Sh11.81 trillion. This figure represents 67.8 per cent of GDP, or nearly $91.42 billion.
Domestic debt accounted for Sh6.33 trillion. External debt stood at Sh5.49 trillion, with multilateral and bilateral lenders making up the largest share.
Debt Sustainability and Risks
The report notes that Kenya’s debt remains sustainable. However, it still carries a high risk of distress. To address this, the analysis urges the government to strengthen key external debt indicators.
Recommended measures include expanding and diversifying exports to boost foreign exchange earnings. The report also calls for maintaining strong gross international reserves to cushion the economy from external shocks. Together, these steps will ease pressure on debt servicing and improve resilience.
Fiscal Reforms to Build Confidence
The updated debt strategy also outlines fiscal reforms to strengthen credibility and transparency. These include reviewing the Public Debt and Borrowing Policy and introducing a Liability Management Policy.
Through these reforms, the government aims to improve coordination, reduce borrowing risks, and support long-term fiscal sustainability as it leans more on domestic markets to fund development and close budget gaps.
