Kenya’s domestic debt rose by Sh315.71 billion to Sh7.15 trillion in the three months to March 2026, marking a faster accumulation compared to a similar period last year, and signalling sustained government reliance on the local market to plug budget gaps.
The Central Bank of Kenya.
Photo credit: File
Data from the Central Bank of Kenya shows the rise outpaced the Sh257.53 billion expansion recorded in the corresponding quarter in 2025, translating to an additional Sh58.18 billion or 22.6 per cent rise in borrowing within the same period.
The faster pace of domestic borrowing underscores the Treasury’s continued dependence on the local debt market, even as it seeks to manage external debt risks and currency exposure linked to foreign-denominated loans.
In recent months, policymakers have increasingly leaned on Treasury bills and bonds to finance the budget, buoyed by improving liquidity in the money market and easing interest rates that have lowered the cost of borrowing.
Earlier trends show that declining yields on government securities have provided some relief to the exchequer, cutting interest costs and making domestic debt relatively more attractive compared to external financing.
The rising stock of domestic debt has, however, raised concerns among economists and lawmakers over its potential impact on private sector credit.
Heavy government borrowing from local banks tends to crowd out businesses by locking funds into risk-free government securities, limiting access to affordable credit for enterprises.
In February this year, the National Assembly Committee on Public Debt and Privatisation warned that the government’s increased borrowing from the domestic market could give rise to risks such as starving businesses and households of credit.
Treasury Cabinet Secretary John Mbadi.
Photo credit: Bonface Bogita | Nation Media Group
“Given the declining CBR (Central Bank Rate), the National Treasury should ensure that planned domestic borrowing remains appropriately sized and carefully times so that government demand for funds does not unduly crowd out credit to the private sector,” the committee said.
Kenya’s debt strategy has in recent years shifted toward reducing reliance on commercial external borrowing, which carries higher risks due to exchange rate volatility and refinancing pressures.
By contrast, domestic debt —largely denominated in local currency—is viewed as more manageable, although it comes with trade-offs in terms of liquidity absorption within the financial system.
The current pace of borrowing also highlights ongoing challenges in revenue mobilisation, with the government struggling to meet ambitious tax collection targets.
