Kenya is bracing for another year of intensifying debt repayment pressure after the World Bank’s International Debt Report 2026 revealed that external debt among developing countries surged to a record $9.4 trillion (Sh1,217.3 trillion) in 2025, growing at 5.5 per cent—the fastest pace since 2021 and nearly four times the average growth recorded between 2022 and 2024.
The findings paint a troubling picture for Kenya, which is already grappling with a ballooning public debt stock, rising interest payments and shrinking fiscal space. Kenya’s public and publicly guaranteed debt crossed Sh13.01 trillion by mid-2026, comprising approximately Sh7.33 trillion in domestic debt and Sh5.68 trillion in external obligations. The country’s debt-to-GDP ratio remains stubbornly high at around 67 to 70 per cent, well above the government’s stated debt anchor of 55 per cent.
According to the Treasury’s Draft 2027 Budget Policy Statement, debt-related costs are projected to rise from Sh1.797 trillion in the 2026-27 financial year to Sh1.918 trillion in 2027-28—an increase of Sh120.5 billion. Perhaps most alarming, interest payments are expected to consume 42 per cent of ordinary revenue in 2026-27, compared with just 14.7 per cent in 2013-14, underscoring how dramatically the cost of borrowing has eroded Kenya’s fiscal flexibility.
The global picture is equally concerning. Private creditors drove much of the increase in developing country debt, with bond issuance by public entities rising nearly 35 per cent to $251 billion (Sh32.5 trillion), the highest level in five years. External debt among the most vulnerable countries eligible for concessional financing from the World Bank’s International Development Association increased 8.1 per cent to $1.3 trillion (Sh168.35 trillion).
The cost of borrowing has been particularly punishing for poorer nations. IDA-eligible countries paid an average 8.2 per cent on new private-creditor commitments in 2025—the highest since 1989—and 9.4 per cent on new bonds. Meanwhile, low- and middle-income countries paid $1.4 trillion (Sh181.3 trillion) in principal and interest during 2025, marking a fifth consecutive annual increase. Between 2022 and 2025, developing countries paid $436 billion (Sh56.46 trillion) more in debt service than they received in new financing.
“The return of private lending to low- and middle-income countries is welcome, but these countries are borrowing more, paying more, and in many cases leaving less for long-term development,” said Haishan Fu, the World Bank Group’s chief statistician and director of development data.
For Kenya, the challenge is compounded by a projected fiscal deficit of Sh1.35 trillion in the 2027-28 budget, to be financed through Sh924.9 billion in domestic borrowing and Sh393.9 billion from external lenders. The proposed budget allocates Sh857 billion to education, Sh229 billion to health and Sh455 billion to counties, while the national government faces an estimated financing gap of Sh291.6 billion after mandatory expenditures.
The National Treasury plans to pursue debt swaps, refinancing and buybacks to smooth maturities, while relying mainly on concessional and semi-concessional external loans for capital projects.
It also intends to diversify financing through Samurai loans, Sukuk, Panda bonds and sustainability-linked instruments. However, the World Bank warns that debt management alone may not resolve the pressure if borrowing costs remain elevated and governments continue diverting resources from development.
