Kenya’s Sh851 Billion Debt Boom: Opportunities and Risks

Kenya’s government plans to pay Sh851.42 billion in interest on local bonds in the 2025/26 financial year. This is Sh84 billion more than what will be paid this year. The increase is due to high interest rates and heavy borrowing to fill budget gaps.

Tax-free infrastructure bonds, like one issued in February 2024 with an 18.46% return, are now the most profitable investments. These bonds have outperformed shares, property, and bank savings. Local investors have seen their earnings almost double since 2021/22, but the government is losing Sh14 billion in tax revenue while carrying a huge debt load.

However, this borrowing is causing problems. Kenya’s debt reached Sh6.12 trillion by March 2025, and the interest payments are now larger than the country’s spending on development and education.

Wealthy investors are benefiting from these safe bonds, but small businesses and other borrowers are struggling to get loans because the government is taking most of the money from local lenders.

Last year, the government decided not to introduce new taxes due to public outcry. This has made it harder to manage the debt. Treasury CS John Mbadi and the Public Debt Committee warn that Kenya faces a tough future with expensive loans to repay until 2032.

This is a serious challenge for financial planners and policymakers who need to find better solutions to balance the country’s budget without causing more harm to the economy.