Kenya’s 2025 budget reveals a disturbing mathematical reality: the country is slowly being consumed by its own borrowing. By January 2025, debt interest payments had become more than double development expenditure, a complete reversal from 2015 when development spending was more than three times larger than debt interest payments. This inversion represents more than an accounting problem, it signals a fundamental transformation in what the Kenyan government can actually do for its citizens.
The numbers are stark. Debt servicing costs of Kshs 1,448.1 bn were equivalent to 67.1% of actual revenues collected as of May 2025, which is 37.1 percentage points above the IMF’s recommended threshold of 30.0%. Kenya is paying an average of Kshs 83.66 bn per month in debt interest alone, up from about Kshs 70.0 bn monthly in the previous fiscal year. To put this in perspective, only Kshs 704.4 billion is allocated for development spending in 2025/26, covering roads, schools, water, health infrastructure, and power projects, while debt servicing consumes more than twice that amount.
This fiscal architecture creates what economists call a “crowding out” effect, but the phrase sanitizes the human cost. When development spending represents just 29.9% of its annual target by mid-year, it means hospitals remain unbuilt, roads stay unpaved, and schools operate without adequate facilities. The abstract concept of “reduced fiscal space” translates into concrete deprivation for millions of Kenyans who need public infrastructure to improve their economic prospects.
The debt trap operates with a particular cruelty: it forces governments to choose between servicing obligations to foreign creditors and investing in their own populations. Kenya’s total public debt stood at Kshs 11.0 tn as of March 2025, representing 65.7% of GDP, with the country maintaining B- credit ratings from major agencies that signal high credit risk. This elevated risk perception means Kenya pays premium interest rates on new borrowing, which further accelerates the debt accumulation cycle. Higher borrowing costs necessitate more borrowing to cover existing obligations, creating a self-reinforcing spiral that becomes increasingly difficult to escape.
The composition of Kenya’s debt reveals additional vulnerabilities. For the 2025/26 fiscal year, the government projects to raise about Kshs 901.0 billion in new debt, with around 65.0% from domestic sources. This heavy reliance on domestic borrowing absorbs capital that might otherwise flow to private businesses, driving up interest rates across the economy and making it prohibitively expensive for entrepreneurs and companies to access credit. The government, wielding its sovereign borrowing power, effectively monopolizes domestic capital markets, leaving the private sector, the supposed engine of job creation, starved of financing.
This fiscal structure creates a paradox that defines contemporary Kenya: the government announces impressive GDP growth rates while simultaneously losing the capacity to deliver basic public services. Kenya’s real GDP is expected to pick up gradually in the medium term, with growth projected to increase from 4.5% in 2025 to about 5.0% in 2026-27. Yet this growth occurs within an economy where the government’s ability to invest in productivity-enhancing infrastructure steadily diminishes. The result is growth that feels hollow to ordinary Kenyans, GDP expands while the roads they drive on deteriorate, the schools their children attend lack resources, and the hospitals they rely on remain understaffed and undersupplied.
The political economy of debt servicing creates perverse incentives for fiscal management. When two-thirds of government revenue automatically flows to debt repayment, political leaders lose flexibility to respond to citizen demands or economic shocks. A debt service to revenue ratio above 50.0% means more than half of government revenue is allocated to servicing debt, leaving limited fiscal space for public investments, social programs, and other critical government functions. This pre-commitment of resources transforms democracy into something closer to financial administration, politicians can rearrange the remaining third of the budget, but the fundamental fiscal trajectory remains locked in place by obligations incurred years or decades earlier.
The human implications of this fiscal straitjacket extend far beyond infrastructure deficits. A massive Kshs 1.7 tn, or about 41.0% of the total budget, goes towards recurrent expenditures such as paying civil servant salaries and administrative operations. Combined with debt servicing, these mandatory expenditures consume virtually the entire budget, leaving almost nothing for the transformative investments that might alter Kenya’s economic trajectory. The government becomes, in effect, a massive payroll processor and debt servicer rather than a developmental state capable of strategic investments in human capital and infrastructure.
International financial institutions acknowledge the severity of Kenya’s fiscal constraints while offering recommendations that, however technically sound, require political will that may not exist. The World Bank warned that Kenya’s debt has reached about 68.0% of GDP and is eroding development and other necessary government expenditures such as education and healthcare. Their prescription includes reorganizing resource collection and allocation, strengthening accountability, tightening governance and procurement to reduce leakages, simplifying corporate taxes, rationalizing subsidies, and reducing fiscal risks from state-owned enterprises. If fully implemented, these measures could lower Kenya’s debt to about 44.0% of GDP by 2035, but the “if” carries enormous weight.
Implementation failures reveal the gap between technocratic solutions and political realities. Kenya loses an estimated Kshs 700.0 bn annually to corruption, nearly a fifth of the national budget. This figure, roughly equivalent to the entire development budget, suggests that governance failures cost Kenya as much capacity for national investment as the debt burden itself. The mathematics are brutal: eliminate corruption or halve debt servicing costs, and Kenya could double its development spending. The persistence of both challenges simultaneously explains why fiscal consolidation remains perpetually out of reach.
The debt crisis also constrains Kenya’s ability to respond to economic shocks or emergencies. When virtually all fiscal resources are pre-committed to salaries and debt, any unexpected crisis, whether drought, pandemic, or financial turbulence, forces the government into additional borrowing under unfavorable terms. The economic slowdown in 2024 stemmed from multiple challenges including floods, high interest rates, and subdued business sentiment, with growth further dampened by weak industrial activity and policy uncertainty. Yet the government’s capacity to counteract such shocks through fiscal stimulus had already been compromised by existing debt obligations, making economic recovery slower and more difficult.
The comparison with peer nations illuminates Kenya’s particularly acute vulnerability. On debt service to revenue ratio, Nigeria had the highest ratio at 66.9%, followed closely by Kenya at 62.6%, while Mauritius had the lowest ratio at 11.8%. Kenya finds itself grouped with economies facing the most severe fiscal constraints in Africa, while its aspirational comparisons, countries that successfully achieved middle-income status, maintain substantially healthier fiscal positions. This divergence suggests Kenya’s debt burden may prevent rather than facilitate the economic transformation its leaders promise.
The 2025 Medium-Term Debt Strategy targets a borrowing mix of 25.0% from external sources and 75.0% from domestic markets, aiming to reduce the debt-to-GDP ratio from 63.7% to 57.8% by 2028. Yet this strategy’s credibility depends on assumptions about revenue growth that may prove optimistic. Treasury Principal Secretary Chris Kiptoo admitted that revenue shortfalls remain a concern for the year ahead, suggesting the fundamental problem, insufficient revenue relative to spending commitments, persists despite debt management strategies.
