The National Treasury, in its Medium-Term Debt Management Strategy (MTDS), is keen on reducing Kenya’s debt which is now 65.7%, 10.7 points above the Parliament’s debt cap of 55% of the National Gross Domestic Product (GDP).
According to the 2025 MTDS framework, as of the end of June 2024, the stock of public debt was Ksh10.58 trillion (65.7 percent of GDP), with domestic debt standing at Ksh5.41 trillion and external debt at Ksh5.17 trillion.
The MTDS analysis also took into account the debt stock of Ksh10.32 trillion excluding the performing guarantees debts, International Monetary Fund (IMF) Special Drawing Rights (SDR) allocation, government overdraft at the Central Bank of Kenya (CBK), suppliers' credit, and bank advances.
However, as the National Treasury braves to manage the ballooning debt, it has listed 11 challenges that could inflict its debt management strategy:
- Kenya’s recent downgrade in credit rating could have a significant impact on the financial terms of various credit sources, especially the commercial. Rating downgrades may lead to increased borrowing costs, limited access to credit markets, low investor confidence, currency depreciation, and debt sustainability risk.
- The public debt legal framework not empowering enough as does not provide the Public Debt Management Office (PDMO) with the requisite autonomy to manage public debt.
- Duplicated legal provisions from the Central Bank of Kenya (CBK) Act, and Public Finance Management (PFM) Act 2012 provide CBK with leverage unqualified fiscal agency privileges without adequate accountability.
- Tight budget provisions precipitate cash constraints leading to borrowing proceeds being a major budget funding source.
- Deteriorating sovereign credit ratings due to debt accumulation on account of fiscal deficits.
- A large share of foreign currency debt leading to exchange rate risks.
- Changing Regulatory Environment: adapting to evolving lending patterns and ensuring adherence to international standards is very demanding.
- External Market Volatility: External factors such as global market volatility, interest rate fluctuations, and low credit ratings impact debt management strategies.
- Legal reforms required to deepen the domestic market are slow and difficult to come due to duplicated authority among the fiscal agent and National Treasury.
- Limited understanding of public debt management amongst major stakeholders. Public debt is both a highly technical and an emotive subject in the political arena. Need for sustained capacity building on public debt management (it affects citizen welfare).
- The high stock of maturing Treasury bills exert pressure on liquidity and hence the need to reduce Treasury bills Stock. There is a need to reduce refinancing risk by separating the borrowing operations of the PDMO from the liquidity management operations of the Exchequer.
