Kenya must take urgent steps to rein in its growing public debt, Controller of Budget (CoB) Margaret Nyakango has advised, urging the National Treasury to set a target of reducing the debt-to-GDP ratio to 55 per cent by 2029.
This recommendation comes as the government struggles to balance borrowing needs with sustainable fiscal management.
While Kenya’s debt-to-GDP ratio has shown signs of improvement—dropping from 71.9 per cent in 2022 to 65.7 per cent by mid-2024—it remains well above the International Monetary Fund’s (IMF) recommended ceiling of 50 per cent for developing economies.
The 2025 Budget Policy Statement anticipates a further decline to 52.5 per cent by 2029, but the COB insists that a structured approach is necessary to ensure meaningful progress.
The report emphasises the need for a clear plan to guide debt reduction efforts.
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“The National Treasury should develop a roadmap to achieve the benchmark debt threshold of 55 per cent of debt to GDP by 2029 and progress towards meeting the International Monetary Fund’s recommended 50 per cent threshold,” the review stated.
Beyond the overall debt burden, the review also flags concerns over Kenya’s debt composition.
By December 2024, the country’s public debt had climbed to Sh10.93 trillion, with external borrowing accounting for Sh5.06 trillion, which represents 46 per cent and domestic lenders holding Sh5.87 trillion, which translates to 54 per cent.
This debt structure, which has remained relatively unchanged, limits Kenya’s ability to respond effectively to economic turbulence.
The MTDS outlines strategies to shift towards longer-term borrowing and strengthen the domestic bond market, but worrying trends persist.
Short-term debt rose from 16.7 per cent in June 2023 to 18.6 per cent in June 2024, increasing the risk of frequent refinancing.
Nyakango has urged Parliament to ensure the Treasury enacts policies in the 2024/25 financial year to reduce reliance on short-term debt and mitigate associated risks.
Further complicating the country’s debt landscape is the rising cost of borrowing.
The weighted average interest rate jumped from 3.2 per cent in June 2023 to 4.6 per cent a year later, while the grace period for repaying loans shortened from 4.8 to 4.4 years.
This means Kenya will have to settle its obligations faster and at a higher cost, putting additional strain on the economy.
The COB has called on the Treasury to negotiate for better interest rates and extend repayment grace periods to ease fiscal pressure.
With mounting obligations and economic vulnerabilities, the government now faces the difficult task of implementing these recommendations while ensuring fiscal stability in the years ahead.
