Kenya’s government now leans harder on its own lenders than on foreign ones, and the bill is landing on everyone else. Analysis by the Institute of Public Finance (IPF) shows domestic debt is the largest share of Kenya’s public debt. As of June 2025, total public debt stood at about Sh11.8 trillion, with domestic borrowing making up 54 percent. By March 2026, domestic debt had climbed to roughly Sh7.08 trillion.
“Domestic debt is no longer the quiet cousin it’s now over half of Kenya’s total debt,” the IPF said. “When domestic debt rises, the entire economy feels the squeeze.”
An expensive habit
Local borrowing carries an average interest rate of about 12 percent, more than double the cost of concessional external loans. The IPF puts domestic debt at two to three times as expensive. The International Monetary Fund made the same point in its October 2025 Regional Economic Outlook for Sub-Saharan Africa, calling domestic borrowing “significantly more expensive than external borrowing.” Central Bank of Kenya data show Treasury bill and bond yields hit multi-year highs in 2024, with short-term rates reaching 16 percent as government demand for local money grew.
Who gets squeezed out
Most of that money comes from banks, pension funds and insurers, the same institutions that would otherwise lend to businesses. “High concentration in government securities crowds out private sector credit. SMEs lose out,” the IPF said. The World Bank warned in its May 2025 Kenya economic update that domestic borrowing combined with high lending rates “risks crowding out the private sector.”
The cost of servicing it
Total debt servicing reached about Sh1.72 trillion in the 2024/25 financial year, per IPF data, and the institute noted that this is far above what is spent on health and social protection. Moody’s said in July 2025 that Kenya spends about one-third of government revenue on interest. Fitch flagged in mid-2025 that rising dependence on domestic borrowing raises refinancing risk and debt sustainability pressures.
The IPF also points to governance gaps: weak parliamentary oversight, limited transparency about how borrowed money is used, and no binding rules on domestic borrowing for recurrent spending.
Why the shift
Tighter global financial conditions have made foreign borrowing costlier and harder to get. Under its Medium-Term Debt Management Strategy, the government plans to rely more on domestic borrowing and cut its exposure to foreign currency risk. The open question is whether avoiding exchange-rate risk is worth paying more at home, and what that does to credit available to Kenyan firms.
