Kenya’s Fiscal Anchor Drags Harder: First-Quarter Repayments Hit Sh507 Billion

By Benadeta Mwaura - Reporter

Kenya December 16, 2025 – Kenya’s public finances are under growing strain as sovereign borrowing costs continue to swallow large chunks of government revenue, raising fresh concerns about sustainability and fiscal transparency. According to the Controller of Budget (CoB), Kenya spent Sh507.98 billion on debt payments in the first quarter of the 2025/26 fiscal year (July–September 2025), marking the first time borrowings service exceeded half a trillion shillings in a similar period.

This figure represents a significant jump from Sh325.52 billion in the same quarter last year, driven by repayments on external and domestic borrowings. Controller of Budget Margaret Nyakang’o noted that the rising cost of repaying commitments is stretching Treasury resources, with fiscal commitments service far outpacing expenditures on key development areas such as housing and roads.

This comes as Kenya’s total public borrowings has climbed to approximately Sh11.7 trillion, equivalent to around 67.8% of GDP as of June 2025, according to Finance Minister John Mbadi. The sovereign borrowings has been rising on the back of fiscal deficits, expensive domestic borrowing, and currency depreciation pressures.

Domestic and External Fiscal Pressures

Data from the Controller of Budget and other reports show that Kenya’s shift toward short-term domestic borrowings—particularly Treasury bills and bonds—has significantly driven up servicing costs.

Interest payments on domestic instruments alone have surged, forcing the government to allocate more revenue just to cover interest without meaningfully reducing the principal owed.

A recent critique warned that repayment burdens could consume upwards of 70% of ordinary revenue, leaving limited room for essential services and development spending.

Economists caution that heavy reliance on short-term instruments like Treasury bills could expose the Treasury to refinancing risks especially if market conditions tighten or lenders demand steeper rates.

Safaricom Share Sale: A Controversial Revenue Move

In a bid to raise cash and stabilize public finances, the government sold a 15% stake in Safaricom to Vodacom Group. The deal generated Sh244.5 billion, funds the Treasury says will finance strategic infrastructure without adding to the nation’s fiscal commitments.

Treasury Cabinet Secretary John Mbadi defended the divestment, saying proceeds will support crucial projects under President William Ruto’s economic agenda “without burdening taxpayers further.” He described the sale as aligned with boosting Kenya’s National Infrastructure Fund.

But critics, including Kiharu MP Ndindi Nyoro, called it opaque—a “raw deal” risking the mortgaging of future revenue streams and undervaluing a national asset.

Nyoro warned that such moves, alongside off-budget credit arrangements allegedly secured against future fuel levies, mirror risky practices seen in other fiscally strained economies. He accused the Treasury of limited transparency and demanded open bidding to protect public interest.

Privatisation Bill and Public Asset Sales

Amid rising cost of borrowing and constrained revenue, Parliament passed the Privatisation Bill 2025, aimed at creating a legal framework for selling stateowned enterprises and assets.

The law has stirred debate over how public assets are managed and disposed. Critics argue it grants wide latitude to the Treasury to privatise without robust parliamentary oversight, while supporters say it will unlock capital for investment and ease fiscal pressure.

Legal experts and civil society voices have raised concerns that under the new regime, the Treasury Cabinet Secretary could unilaterally chart privatization programmes over extended periods, potentially affecting transparency and value realization for state assets.

Central Bank & Fiscal Governance Shifts

A parallel dispute has emerged over debt issuance powers, with the Treasury seeking to remove the Central Bank of Kenya (CBK) from the sale of government bonds and Treasury bills.

If enacted, the move would centralise issuance under the National Treasury’s Public Debt Management Office (PDMO), a plan that has drawn opposition from CBK leadership concerned about independence and market confidence.

The CBK’s evolving role, amid proposals that would see the Treasury manage key borrowing mechanisms, has been described as part of wider reforms aimed at reducing borrowing costs but carries risks if not balanced with strong fiscal governance. What This Means for Kenyans as sovereign borrowings servicing continues to consume a growing share of government revenue, funds available for critical sectors like health, education, and infrastructure development are squeezed.

Analysts note that for every Sh100 collected in revenue, a large proportion may now be going toward interest and principal repayments, with reduced fiscal space for growth enhancing investments.

Policy makers are weighing options to lengthen debt maturities, refinance expensive obligations, and secure more concessional external financing to ease immediate pressure.

However, the mix of asset sales, legislative changes, and contested fiscal practices underlines the challenge of balancing financial liabilities & their sustainability with economic growth and public accountability.