- Local debt has surged by Sh890 billion in one year, now at Sh6.12 trillion.
- Foreign loans grew by just Sh70 billion in the same period.
- Government now prefers borrowing from within, as interest rates fall.
- Public debt now equals 70% of Kenya’s GDP, raising fresh concerns.
As external funding slows, the Kenyan government is increasingly borrowing from the local market to meet its financial needs. Treasury data shows that domestic debt ballooned by Sh890 billion between March 2024 and March 2025, pushing the total to Sh6.12 trillion.
Drop in External Borrowing Sparks Major Shift
This change marks a sharp turn from previous government pledges to lean more on concessional loans from institutions like the World Bank and IMF. Over the same 12-month period, Kenya’s external debt only rose slightly by Sh70 billion, settling at Sh5.23 trillion.
Public Debt Hits Sh11.36 Trillion
According to the Treasury’s latest report, Kenya’s overall public and publicly guaranteed debt climbed to Sh11.36 trillion by the end of March 2025. The report blames the bulk of this rise on increased domestic borrowing, as the state relied more on local funds to meet its budget targets.
Interest Rates on Treasury Bills Fall
With interest rates on Treasury securities falling, the government found it cheaper to borrow locally. The 91-day Treasury bill rate dropped to 8.9% in March 2025, down from 16.7% a year before. Similar drops were recorded for 182-day and 364-day papers, giving investors incentive to buy in before further declines.
Stronger Shilling Slows Foreign Debt Growth
Meanwhile, a stronger Kenyan shilling helped ease the growth of external debt. Between January and May, the currency improved from 161.35 to 129.23 against the dollar. The Central Bank says each unit gained against foreign currencies cuts the value of external debt by about Sh40 billion.
Local Banks, Pension Funds Lending More
However, the shift toward domestic borrowing comes with new problems. With the government taking more loans from banks, pension funds and insurance firms, there’s less credit available for private businesses. This could hurt economic recovery by limiting access to affordable loans for the private sector.
Public Debt Now at 70% of GDP
Debt owed to local banks rose by 18.7% over the past year, now standing at Sh2.6 trillion. Non-bank institutions and foreign investors hold Sh3.33 trillion, up from Sh2.84 trillion. Overall, Kenya’s debt now equals 70% of its GDP — a level that experts warn could affect long-term development and fiscal stability.
