Kenya's reliance on commercial bank financing for public debt reached record levels by December 2018, with domestic and foreign lenders accounting for 42.25% of the Sh5.27 trillion national debt stock. This marked a significant increase from 40.17% in December 2017 and 36.71% in 2016, according to national statistics.
The Treasury accumulated Sh822.56 billion in commercial debt between 2016 and 2018, with foreign banks contributing Sh480.03 billion. This shift followed Kenya's transition to a lower-middle-income economy in 2014, which limited access to highly concessional loans from institutions like the World Bank's International Development Association.
Parliamentary Budget Office data warns that rising commercial debt - which carries market-determined interest rates - will drive up repayment costs. Treasury's 2019 budget allocates Sh870.62 billion for debt servicing, exceeding half of projected Sh1.61 trillion tax revenues.
Of the Sh505.96 billion in domestic debt obligations, Sh285.61 billion is earmarked for interest payments. Foreign debt repayments include Sh364.66 billion, with Sh250.28 billion allocated for principal repayments. Key upcoming payments include Sh98.15 billion for the first Eurobond tranche and Sh86.64 billion for a Citi Bank loan.
Capital Markets Authority CEO Paul Muthaura advocates for mixed-currency borrowing strategies, citing India's success with rupee-denominated international bonds. He argues that diversifying debt issuance between shillings and foreign currencies could mitigate foreign exchange risks associated with Kenya's growing external debt burden.
