Kenya is bracing for a sharp increase in interest payments on public debt, which are expected to reach Sh1.2 trillion in the 2026/27 fiscal year, threatening to squeeze funds for development projects and essential services.
The Parliamentary Budget Office (PBO) has raised alarm that the rising debt obligations are consuming a growing portion of the national budget and limiting the government’s fiscal flexibility.
In a report submitted to the Budget and Appropriations Committee (BAC) of the National Assembly, the PBO highlighted that interest servicing costs on the Sh12.1 trillion debt stock are projected to climb further in the medium term.
The office also noted that the fiscal deficit for 2026/27 is expected to expand by Sh216 billion, reaching Sh1.15 trillion.
The analysis shows that the share of the budget dedicated to interest payments has risen steadily, from 15 per cent in 2018/19 to over 25 per cent in the current year, amounting to Sh1.1 trillion in 2025/26.
The PBO pointed out, “Interest payments on public debt have increasingly constrained fiscal flexibility, limiting resources available for essential service delivery and development initiatives.” The report attributes this trend largely to repeated fiscal deficits averaging 7.4 per cent of GDP between 2014/15 and 2020/21.
According to the 2026 Budget Policy Statement (BPS), currently under parliamentary review, the government plans total expenditure of Sh4.7 trillion in 2026/27, leaving a projected deficit of Sh1.15 trillion.
The financing strategy for the gap relies on Sh225.5 billion from external sources and Sh924 billion through domestic borrowing.
The BPS projects that the Kenya Revenue Authority will collect Sh3.5 trillion during the next fiscal year, leaving a deficit equivalent to 5.3 per cent of GDP, compared to 4.7 per cent or Sh933 billion in 2025/26.
The PBO warned, “The substantial reliance on domestic borrowing to cover the larger deficit raises concerns, as it could crowd out private sector access to credit, potentially constraining investment and economic activity in the medium term.”
Beyond debt concerns, the office highlighted that low absorption of development funds has slowed progress on major projects, despite increased allocations in the overall budget.
The combination of rising debt service obligations and underutilized development expenditure continues to hamper Kenya’s capacity to deliver on critical infrastructure and social services.
