Treasury Cabinet Secretary (CS) Hon. FCPA John Mbadi has launched the 2025 Medium-Term Debt Management Strategy (MTDS), outlining key reforms aimed at ensuring debt sustainability, cost minimization, and risk mitigation over the 2025-2028 period.
Speaking at the launch event, attended by Principal Secretary Dr. Chris Kiptoo, Comptroller of the Budget Margaret Nyakang’o, financial sector regulators, and private sector representatives, CS Mbadi emphasized the government’s commitment to reducing reliance on costly commercial debt and deepening the domestic debt market.
As of June 2024, Kenya’s public debt stood at Ksh 10.58 trillion, equivalent to 65.7 percent of GDP, with Ksh 5.41 trillion in domestic debt and Ksh 5.17 trillion in external debt. Treasury bonds account for 85.5 percent of domestic debt, while 53.9 percent of external debt is held by multilateral lenders.
Despite the debt being deemed sustainable, Kenya remains at high risk of debt distress, with its debt-to-GDP ratio at 63 percent, exceeding the 55 percent recommended threshold. The government aims to lower this ratio to 52.8 percent by FY 2027/28 through a mix of fiscal consolidation, export growth, and debt market reforms.
To address growing fiscal challenges, the 2025 MTDS proposes a shift in Kenya’s borrowing strategy, targeting a mix of 75 percent domestic and 25 percent external borrowing. The government plans to focus on concessional financing while phasing out expensive commercial loans. By 2027/28, the external-to-domestic debt mix is expected to shift to 45:55, down from the current levels.
CS Mbadi also highlighted debt restructuring initiatives, including:
Liability Management Operations (LMO) to extend debt maturities and reduce refinancing risks, sustainability-linked bonds and debt swaps to manage the growing debt burden, currently at 66 percent of GDP and strengthening the domestic bond market to attract local and international investment.
The CS acknowledged sovereign credit rating downgrades, global interest rate volatility, and high debt service costs as major challenges. Kenya faces Ksh 700 billion in outstanding Eurobonds, with Ksh 120 billion due for repayment this year, further straining fiscal space.
To mitigate these risks, the government will focus on fiscal reforms, export diversification, and building international reserves to strengthen the country’s macroeconomic position. The goal is to lower the debt-to-GDP ratio to 55 percent by 2029 while ensuring critical public services remain unaffected.
CS Mbadi underscored the importance of transparency, governance reforms, and partnerships with investors to enhance confidence in Kenya’s debt market. The National Treasury is working closely with regulators and development partners to improve debt sustainability metrics and enhance fiscal discipline.
With debt servicing consuming a significant portion of government revenue, the 2025 MTDS aims to create a more balanced debt structure, ensuring long-term economic stability and fiscal resilience.