Budget Controller expresses concern over escalating Sh12 trillion debt burden
Kenya's long-term sovereign credit rating has been upgraded to 'B' from 'B-' by S&P Global Ratings on August 23, 2025. This significant improvement provides a confidence boost for the Treasury, facing substantial debt servicing requirements.
As of June 2025, Kenya's public debt stood at a staggering Sh11.73 trillion, making up 54% of the total debt. Domestic debt alone accounted for Sh6.33 trillion. The escalating debt service obligations have been a cause for concern, with debt servicing consuming Sh1.59 trillion in the 2024-25 financial year alone, equivalent to 91% of the budget allocated for public debt.
Interest payments on domestic debt totalled Sh678.25 billion. Despite this, Kenya's forex reserves reached a record-high $11.2 billion (Sh1.45 trillion) in July 2025, up from $6.6 billion (Sh858 billion) at year-end 2023. The rating improvement is likely to reduce the premium investors demand to hold Kenyan risk, potentially making future Eurobond issuances and commercial loans less expensive.
S&P highlighted improvements, noting that Kenya's current account deficit narrowed to 1.3% of GDP in 2024 from 2.6% in 2023. The agency also pointed to Kenya's successful debt management, stating that the Eurobond issuance and buy-back operation in February 2025 helped lower Eurobond principal repayments.
However, the upgrade comes amidst concerns about the government's deviation from its own borrowing policy in the 2024-25 financial year. Domestic borrowing outpaced external loans, contrary to a medium-term strategy recommending a balanced 50:50 mix. This imbalance has raised questions about the sustainability of the country's debt management.
The shrinking fiscal space threatens the delivery of essential public services and development programs. The escalating debt service obligations are limiting cash flows and affecting the operations of business activities, especially Small and Medium Enterprises.
Kenya's public debt has grown sharply under President William Ruto's administration, increasing from Sh8.7 trillion in June 2022 to approximately Sh11.73 trillion in June 2025. The country, which was under the presidency of Jomo Kenyatta during the period often referred to as "under the bow," related to the time of British colonial state of emergency and early independence, now faces the challenge of managing its debt to ensure sustainable economic growth.
The upgrade, while a positive step, underscores the need for careful debt management and adherence to borrowing policies to maintain the country's creditworthiness and ensure the delivery of essential services.
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