AfDB Warns Kenya Faces Growing Debt Crisis

Kenya is edging deeper into debt distress as weak institutional oversight rather than gaps in legislation continues to undermine responsible borrowing, the African Development Bank Group (AfDB) has warned in a new report. The lender says public debt has climbed to about 65 percent of GDP, far above Parliament’s self imposed ceiling of 55 percent, signaling a widening disconnect between legal thresholds and actual fiscal behavior.

According to the report, both the National Assembly and the Treasury’s Public Debt Management Office (PDMO) lack the technical and human capacity required to effectively scrutinise and push back against risky loan agreements. This institutional weakness has contributed to the accumulation of costly obligations marked by short maturities, high interest rates, currency mismatches and growing contingent liabilities that are now straining repayment capabilities.

Inside Parliament, the shortcomings are attributed less to the absence of oversight tools and more to a persistent failure to use them. Legislators are mandated to set debt limits, scrutinise the national Budget and monitor implementation using bodies such as the Parliamentary Budget Office (PBO). However, PBO director Martin Masinde says lawmakers routinely ignore the office’s analysis, while key oversight committees including the Public Debt and Privatisation Committee are not functioning as intended in a political environment where opposition roles appear increasingly diminished.

The AfDB adds that Kenya’s legal framework for fiscal prudence remains strong on paper, yet weak legislative enforcement has allowed the Executive’s borrowing appetite to exceed sustainability thresholds. This disconnect has created room for excessive lending, much of it tied to infrastructure spending, recurrent costs and frequent refinancing, resulting in a debt portfolio that is now more vulnerable to global shocks.

The Treasury’s PDMO faces similar weaknesses, with the AfDB citing staff shortages and insufficient expertise needed to negotiate complex loan terms. Auditor General Nancy Gathungu has previously flagged these gaps, warning that the office’s limitations expose Kenya to expensive and poorly structured debt. As a result, the country’s borrowing portfolio is heavily skewed toward high cost loans, amplifying refinancing risks at a time when revenue pressures are tightening.

To reverse this trend, the AfDB is urging comprehensive capacity building not only within Parliament and the PDMO but also through the establishment of an independent fiscal council. Such a body, staffed by experts from the Treasury and academia, would provide non partisan assessments of borrowing plans and help curb politically driven fiscal decisions. The bank argues that these technocratic solutions will only work if MPs and the Executive demonstrate a willingness to accept constraints on short term spending ambitions.

Ultimately, the report warns that political resistance to tightening fiscal controls remains the biggest obstacle to averting a deeper debt crisis. Without decisive reforms, Kenya risks entering a new phase of debt distress marked by rising repayment pressures, weakened investor confidence and reduced fiscal space for essential public services.