The National Treasury has disclosed that the recent downgrade of Kenya's credit rating has severely constrained the country's access to commercial loans, posing significant challenges to its borrowing strategy.

In its 2025 Public Debt Management Strategy released on Monday in Nairobi, the Treasury explained the ripple effects of the downgrade.

“Rating downgrades lead to increased borrowing costs, limiting access to credit markets, low investor confidence, currency depreciation, and debt sustainability risk,” the statement read.

The challenges stem from an August 2024 decision by Standard & Poor’s to lower Kenya’s long-term sovereign credit rating from B to B minus.

The global credit ratings agency cited weaker fiscal consolidation efforts and mounting public debt as key reasons for the adjustment.

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Kenya's public debt, while still classified as sustainable, is teetering on the brink of unsustainability.

The Treasury revealed that the present value of public debt had climbed to 63 per cent of the gross domestic product (GDP), surpassing the 55 per cent threshold for sustainable debt levels.

The government has pledged to bring this figure within the acceptable limit by 1 November 2028.

To manage the impact of the downgrade, the Treasury announced a shift in its borrowing strategy.

Over the coming period, 25 per cent of Kenya’s gross borrowing will come from external sources, while 75 per cent will be raised domestically.

As the government grapples with these financial challenges, the downgrade serves as a stark reminder of the delicate balance required to maintain economic stability while addressing mounting debt obligations.