Kenya’s soaring domestic and external debt is putting increasing pressure on the economy, Central Bank of Kenya Governor Kamau Thugge said, as repayment performance shows signs of strain.
Thugge, who spoke before the Public Debt and Privatisation Committee of the National Assembly on Tuesday, admitted that though the country was still meeting its debt obligations, the increasing repayment burden had narrowed down fiscal space.
The situation raises concerns over potential debt distress, increasing the possibility of default.
Thugge reported that total public debt for the 2024/25 financial year stands at Sh11.8 trillion, equivalent to 69 percent of GDP, surpassing the 55 percent ceiling recommended by the Public Finance Management Act. Both domestic and external borrowing have exceeded economic growth for several years. Domestic debt stands at Sh6.33 trillion (37% of GDP) while external debt totals Sh5.5 trillion (32.1% of GDP).
The governor explained that domestic debt repayment, which consistently achieved a performance rate of 100 percent in the period from 2014/15 to 2020/21, has recently been less consistent. Repayment was 89 percent in 2021/22, increased to 94 percent in 2022/23, decreased to 90 percent in 2023/24, and marginally improved to 99.8 percent in 2024/25.
This trend underlines the importance of cautious management of borrowing and repayment strategies in order to avoid risks in the future, said Thugge.
To stabilize the debt situation, he stressed the need to slow down debt accumulation, diversify the investor base, and enhance coordination between fiscal and monetary policies. He also recommended managing refinancing risks, expanding concessional external financing, increasing public-private partnerships for infrastructure, modernizing domestic debt market structures, aligning Treasury auctions with liquidity conditions, and mitigating exchange rate risks.
These steps are critical to maintain financial stability, protect fiscal space, and reduce vulnerabilities that rising debt brings, Thugge averred.
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