Treasury defends debt strategy as Kenya’s public debt nears 70% of GDP

Lawmakers and economists are questioning Kenya's public debt strategy after the country's debt burden reached approximately 69.5% of gross domestic product (GDP), debating whether rising debt could limit fiscal flexibility and affect Kenya's medium-term economic outlook. 

Treasury Cabinet Secretary John Mbadi told the Senate that the public and publicly guaranteed debt stood at about 12.842 trillion KSh as of 26 February 2026, which is about 69.5% of GDP. 

The National Treasury has defended its borrowing plan but assured lawmakers that it will continue to manage the country's public debt despite slow growth and a challenging global economic environment. 

The Treasury debt strategy is centered on reducing fiscal deficits, increasing the availability of concessional financing and managing the existing debt to reduce refinancing risks, the Treasury said. 

The Treasury attributes the rise in Kenya’s public debt to external shocks, weak global economic growth, and rising financing costs. However, it is confident that Kenya's economy has the capacity to service its debt obligations.

For forex market participants, government borrowing affects more than fiscal policy. It can affect investor confidence, currency stability, government bond yields, and risk-sensitive assets. 

What is Kenya's debt-to-GDP ratio? 

Kenya's public debt ratio of 69.5% means that the country's debt is roughly 69.5% of everything Kenya produces in a year. The higher that ratio gets, the more pressure it puts on public finances. This is because a larger share of the government’s revenue will go toward debt servicing instead of funding development.

Of the total debt figure, domestic debt is about 6.78 trillion KSh, while external debt stands at 5.54 trillion KSh. The Treasury noted that multilateral lenders remain Kenya’s largest source of external financing, followed by commercial and bilateral creditors. 

Public debt grew faster than the Kenyan economy, rising from 67.8% to 69.5% of GDP between June 2025 and February 2026. The IMF has indicated the possibility that the ratio could reach 71.6% in 2026 and 72.4% in 2027. 

While domestic activity in Kenya is improving gradually, weaker export growth and tighter financial conditions elsewhere could hamper fiscal planning. Kenya continues to invest in its infrastructure, health, education and other public services. 

However, the Treasury is having trouble raising money for these areas and paying off its existing debt.

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What is the Treasury's defense?

The National Treasury has defended its borrowing policy, arguing that debt levels are not excessive and that the country retains the capacity to service its obligations.

Treasury Cabinet Secretary John Mbadi told the Senate that the country had continued to grow in most key sectors despite challenges from external factors, including the conflict in the Middle East and drought risks faced at the end of 2025. 

A major part of the National Treasury's debt strategy is fiscal consolidation. In an effort to reduce the budget deficit, the Kenyan government is seeking to increase tax revenues, manage expenditure, and limit the country’s commercial borrowing. 

The Kenya 2026 Medium-Term Debt Management Strategy aims to finance 16% of gross borrowing from external sources and 84% from domestic sources to lower the costs and risks associated with public debt in the medium term. 

Domestically, the strategy aims to reduce Treasury bills while lengthening debt maturity through medium-to-long-term debt securities. Externally, the target is a mix of concessional financing and new instruments such as sustainability-linked bonds, with lower interest rates and longer repayment periods. 

The success of Kenya’s refinancing strategy partly depends on global financial conditions, including whether renewed dollar strength keeps external borrowing costs elevated.

Liability management operations also remain a part of the National Treasury debt strategy.  These operations allow Kenya to refinance its existing debt and extend repayment timelines where market conditions permit. They also reduce short-term repayment and rollover risks. 

These measures, if implemented well, could reduce debt vulnerability and long-term fiscal and external stability for Kenya.

How does Kenya's public debt affect the shilling?

Public debt is one of the factors that traders consider when assessing market sentiment. Fiscal policy may influence investor confidence and capital flows. As debt increases and fiscal consolidation is questioned, international investors could push up Kenyan bond yields,  resulting in currency depreciation. 

There is also increased pressure on the shilling as investors see it as riskier and may start selling Kenyan bonds and assets. The outflow in this scenario means investors are selling shillings to buy other currencies. 

External debt repayments in foreign currency require the government to source large amounts of hard currency, primarily US dollars,  increasing demand for USD and putting downward pressure on the shilling.

Conclusion 

The Treasury's defense of its borrowing strategy shows that the government is focused on balancing development spending with long-term fiscal sustainability. 

Kenya’s debt-to-GDP ratio is nearing 70%, but officials say that fiscal consolidation, concessional financing and better debt management will help to minimize future risks. 

The forex market may react based on the execution of the National Treasury debt strategy over the coming months. Investors considering Kenya's economic prospects could be interested in the country's efforts to lower its fiscal deficits and meet its refinancing commitments. 

Forex traders might find it more helpful to monitor fiscal policy, global interest rates, and investor sentiment in addition to monetary policy to better understand what’s driving Kenya's financial markets. 

For more information about treasury activities, visit Exness Insights. Forex traders in Kenya can also visit the Exness Blog page for more Kenya forex market-centered updates.