Kenya’s public debt rose by Sh533 billion in the three months to March, underscoring the mounting financing needs facing the Treasury amid debt buybacks and refinancing operations.
Latest official data shows total public debt rose to Sh12.83 trillion at the end of March, up from Sh12.29 trillion in December, adding more than half a trillion shillings within a single quarter.
The government has recently restructured its debt through bond buybacks and extending the maturity of some debt to reduce refinancing risks and smooth future repayments.
Domestic debt accounted for the bulk of the increase, rising to Sh7.15 trillion from Sh6.81 trillion in December, while external debt climbed to Sh5.68 trillion from Sh5.46 trillion.
The latest debt figures indicate the government’s continued heavy reliance on domestic lenders, extending a trend that has increasingly shifted the burden of financing public expenditure towards local banks, pension funds and institutional investors.
Treasury’s growing appetite for domestic borrowing has raised concerns among economists over the potential crowding out of private sector borrowers as lenders channel more resources into government securities.
The rise in debt comes even as the government has accelerated a series of liability management operations designed to spread out repayment schedules and reduce refinancing risks associated with large debt maturities.
The National Treasury Building in Nairobi.
Photo credit: Pool
The National Treasury has increasingly turned to debt buybacks, bond switches and swaps to replace maturing obligations with longer-term instruments carrying more manageable repayment profiles.
In February, for instance, the Treasury announced plans to publish in advance the size of debt it intends to restructure through buybacks, switches and swaps in a move aimed at improving transparency around its debt management strategy.
“The National Treasury shall budget for liability management operations within the national budget and fiscal framework,” the Treasury said while outlining the new disclosure framework.
“A specific Liability Management Operations (LMOs) vote line in the annual budget estimates under public debt management shall be provisioned with adequate estimates every year.”
Kenya has already deployed several of the tools over the past two years, including buybacks targeting Eurobonds maturing in 2024, 2027 and 2028, as well as a currency swap linked to debt incurred for the construction of the Standard Gauge Railway (SGR).
The arrangements have helped the government avoid large repayment spikes that previously unsettled investors and raised concerns about Kenya’s ability to meet its external obligations.
Controller of Budget Margaret Nyakang’o.
Photo credit: Francis Nderitu | Nation Media Group
The country’s debt management strategy came under intense scrutiny ahead of the June 2024 Eurobond maturity, when investors questioned whether Kenya could raise sufficient foreign currency resources to settle the bond.
The Treasury subsequently returned to international markets, raising fresh Eurobond financing and using part of the proceeds to retire portions of outstanding debt before maturity, effectively spreading repayment obligations over a longer period.
Controller of Budget Margaret Nyakang’o has previously cautioned that rising debt service obligations risk consuming a growing share of government revenues, reducing resources available for development spending.
Ms Nyakang’o has also warned against excessive reliance on new borrowing to repay existing debt, arguing that such practices could deepen fiscal vulnerabilities over the long term.
