Kenya faces a growing challenge as public debt continues to rise faster than government revenues. Despite repeated commitments to restore fiscal discipline, projections show that the National Treasury may miss its 2028 debt cap target. This risk reflects deep structural issues in public finance, slow revenue growth, and rising debt servicing costs.
The debt cap, introduced to safeguard economic stability, limits how much the government can borrow. Missing this target would weaken investor confidence and place more pressure on taxpayers. It would also reduce fiscal space for development spending.
Rising Debt Burden and Fiscal Pressure
Kenya’s public debt has expanded rapidly over the past decade. Borrowing increased to fund infrastructure, social programmes, and budget deficits. External shocks, including the COVID-19 pandemic and global inflation, worsened the situation.
As of June 2025, total public debt stood at about Sh11.81 trillion, equivalent to roughly 68 percent of GDP. The government aims to reduce the present value of public debt to 55 percent of GDP by 2028, but current projections show the ratio remaining above 63 percent in the medium term. At the same time, debt servicing costs continue to rise, with the government spending about Sh1.72 trillion on repayments in the 2024/25 financial year, taking up a large share of revenue. With revenue collection averaging about 16 to 17 percent of GDP, these pressures explain why the Treasury is likely to miss the statutory debt target unless fiscal consolidation accelerates.
Debt servicing now consumes a large share of government revenue. Interest payments compete with essential spending on health, education, and security. As revenues struggle to keep pace, the government borrows more to cover existing obligations.
This cycle has made it harder to slow debt accumulation. Even with fiscal reforms, progress remains gradual.
Weak Revenue Growth and Tax Fatigue
Revenue mobilisation remains a major concern. While the government has introduced new taxes and raised existing ones, collections have not grown fast enough. High living costs have reduced consumer spending. Businesses face reduced profitability. Tax fatigue has also emerged. Many households already struggle with inflation and high fuel prices. Additional taxes risk slowing economic activity further.
As a result, revenue projections often fall short. When revenues underperform, borrowing fills the gap. This trend undermines efforts to meet long-term debt targets.
Costly Borrowing and Currency Risks
Kenya’s debt profile includes both domestic and external loans. External borrowing exposes the country to exchange rate risks. When the shilling weakens, debt repayment costs rise.
Global interest rate hikes have made refinancing more expensive. Commercial loans and Eurobonds now carry higher interest rates. Rolling over maturing debt requires careful timing and strong market confidence.
Without favourable refinancing conditions, debt costs may rise faster than expected. This scenario threatens fiscal consolidation plans leading up to 2028.
Spending Pressures and Development Needs
Government spending pressures remain high. The demand for public services continues to grow alongside population growth. Infrastructure maintenance, public sector wages, and social protection programmes require sustained funding.
At the same time, the government must support economic recovery and job creation. Cutting spending too sharply could slow growth. Yet unchecked spending worsens fiscal imbalances. Balancing these priorities remains difficult. Without decisive expenditure reforms, debt levels may remain elevated beyond 2028.
Policy Commitments and Reform Efforts
The National Treasury has outlined plans to restore fiscal discipline. These include reducing budget deficits, improving tax compliance, and prioritising concessional borrowing.
The government also aims to lengthen debt maturities and reduce reliance on expensive short-term loans. Efforts to digitise tax collection and seal revenue leakages continue.
However, reforms take time. Structural changes in public finance often face political and social resistance. Delays reduce their impact within the remaining period to 2028.
Risks of Missing the Debt Cap
Failing to meet the debt cap target would carry serious consequences. Credit rating agencies could downgrade Kenya’s outlook. This move would raise borrowing costs and limit access to global markets.
Development partners may impose stricter conditions on financing. Budget flexibility would shrink further. The government would face tougher choices on spending and taxation. For citizens, the impact could include higher taxes, reduced public services, or slower economic growth.
What Can Change the Trajectory
Kenya can still alter its debt path. Stronger revenue growth offers one solution. Expanding the tax base without overburdening existing taxpayers remains critical. Supporting small businesses and formalising the informal sector could help.
Spending efficiency also matters. Eliminating waste, reducing duplication, and prioritising high-impact projects would improve value for money. Economic growth plays a central role. A growing economy increases revenue without raising tax rates. Investment in productivity, exports, and value addition could support this goal.
A Test of Fiscal Discipline
The 2028 debt cap target represents more than a numerical limit. It reflects Kenya’s commitment to fiscal responsibility and economic sustainability. Missing the target would signal deeper structural weaknesses.
The coming years will test the government’s ability to balance growth, social needs, and fiscal discipline. Success will depend on consistent policy execution rather than new promises.
Kenya’s debt story remains unfinished. The choices made today will shape the country’s economic future long after 2028.
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