Kenya’s public debt stood at 69.9 per cent of gross domestic product at the end of June 2026, with increased reliance on domestic borrowing raising concerns over debt servicing costs and the availability of credit to businesses, according to the World Bank.
The November 2026 Kenya Economic Update showed that domestic debt accounted for 56.2 per cent of the country’s total public debt portfolio, reflecting the government’s growing use of local borrowing to finance its budget deficit.
Net domestic borrowing reached 5.3 per cent of GDP in FY2025/26, exceeding the budgeted amount by 2.1 percentage points. Net external financing contributed a further 1.4 per cent of GDP.
The report said favourable domestic market conditions and declining interest rates supported increased borrowing from the local market. However, the growing share of domestic debt has strengthened the link between government borrowing and the banking sector.
This relationship could expose banks to greater sovereign risk and reduce the funds available for private-sector lending. The World Bank warned that increased government borrowing may crowd out businesses seeking credit to finance investment and expansion.
Debt servicing also continued to absorb a significant share of public resources. Interest payments reached 5.8 per cent of GDP in FY2025/26, driven largely by the growing proportion of domestic debt in the government’s borrowing portfolio.
Although external debt servicing costs have declined since 2024, the overall interest burden continues to restrict the government’s ability to finance development projects and public services.
Kenya also remained at high risk of debt distress, according to the report, underscoring the need for sustained fiscal consolidation and prudent debt management.
The government has undertaken liability management operations, including bond buybacks and maturity extensions, to reduce refinancing pressures. It also converted US$3.5 billion of China Exim Bank debt into yuan financing and issued a US$2.25 billion bond, part of which was used to retire existing Eurobonds.
The World Bank said Kenya needs stronger fiscal discipline to rebuild financial buffers and reduce borrowing pressures. It also recommended improved oversight of public liabilities and more careful management of government financing obligations.
The country’s ability to manage its debt burden will remain central to protecting public investment, maintaining financial stability and ensuring that domestic credit remains available to support private-sector growth.
