Kenya will spend Sh2.31 trillion on servicing public debt in the 2026/27 financial year, with interest payments alone taking up more than half of the amount, according to a report by the National Assembly's Public Debt and Privatisation Committee.
The report shows that debt repayment will account for nearly half of the proposed Sh4.78 trillion national budget beginning July 1, highlighting the growing pressure debt obligations are placing on government finances and development spending.
Of the Sh2.31 trillion earmarked for debt servicing, Sh1.25 trillion, representing 54 per cent, will be used to pay interest on loans while Sh1.06 trillion will go towards repayment of the principal debt.
The committee noted that public debt servicing remains the largest component of expenditure under the Consolidated Fund Services (CFS), accounting for 90 per cent of the projected allocation.
The committee, chaired by Balambala MP Abdi Shurie, said pension payments amounting to Sh241.94 billion make up 9 per cent of CFS expenditure, while salaries and other statutory obligations totalling Sh5.15 billion account for the remaining 1 per cent.
According to the report, total CFS expenditure for the 2026/27 financial year is projected at Sh2.56 trillion, down slightly from Sh2.58 trillion under the 2025/26 Supplementary Budget I.
“The projected decline in 2026/27 is largely attributed to a Sh28.6 billion reduction in public debt service expenditure, partially offset by a Sh7 billion increas in pension related expenditures,” Shurie said.
“Over the medium term, the CFS expenditure is expected to increase to Sh3 trillion by financial year 2029/30 and will have tripled from Sh1.1 trillion recorded in financial year 2020/21,” he added.
Shurie said the expected increase in expenditure is being driven by rising interest costs, pressure from refinancing domestic debt, maturing sovereign bonds and growing pension obligations.
Given that CFS expenditure is charged directly to the Consolidated Fund, he warned that continued growth in these obligations could further limit the government's ability to finance development priorities in the coming years.
“This underscores the need to strengthen cash management practices, proactive debt restructuring measures and broader liability management operations aimed at reducing the debt service obligations and creating lasting fiscal space to spur economic growth,”the MP said.
The report shows that domestic debt repayments will account for the largest share of debt servicing costs at Sh1.64 trillion, equivalent to 71 per cent of the total. External debt repayments are projected at Sh680.38 billion, representing 29 per cent.
“Interest payments account for the larger share at 54 per cent, reflecting the continued cost of carrying public debt,”the committee report states.
The committee further observed that interest payments now exceed development spending.
“At about six percent of the Gross Domestic Product (GDP), interest payments exceed development expenditure, which is estimated at 3.6 per cent of GDP, indicating that debt service costs remain a major component of public spending and continue to shape the fiscal space available for development priorities,” it adds.
The report also shows that Kenya’s public debt stock, which stood at Sh12.84 trillion in February, is expected to rise to Sh14.12 trillion by June 2027. This would place the Net Present Value of public debt at 65 per cent of GDP.
The committee warned that this level remains above the statutory debt anchor of 55 per cent, with a five per cent margin, leaving limited time for the country to meet the October 2028 target.
“This remains above the statutory debt anchor of 55 per cent, with a 5 per cent margin, leaving only one year to meet the October 2028 target,” he said.
“If the target is not met, it may weaken the credibility of the fiscal rules framework and the legislative measures intended to support prudent fiscal management.”
To contain the growing debt burden, the committee recommended that the National Treasury implement a medium-term fiscal consolidation framework aligned with Section 16 of the Public Finance Management Act, aimed at gradually reducing the fiscal deficit and stabilising public debt within the legal threshold.
“In order to strengthen compliance with the statutory debt anchor, the National Treasury should within 30 days of adoption of this report, submit to the National Assembly a clear debt reduction path indicating annual targets, policy measures, and timelines for achieving 55 per cent debt-to-GDP threshold in Net Present Value terms,” the committee said.
The lawmakers also want the Treasury to tighten borrowing procedures and ensure that all loans are subjected to proper project appraisal and economic evaluation before they are contracted.
“In order to ensure that additional borrowing generates measurable economic impact, the National Treasury should, as from July 1, 2026, strengthen resource mobilisation procedures by subjecting all loans to adequate project appraisal, economic valuation and assent of economic rates of return before contracting,” it added.
The committee further recommended that all liability management operations be backed by cost-benefit analysis, full disclosure of terms and conditions and assessment of their effect on debt sustainability.
It also called for greater transparency on how borrowed funds are utilised, including amounts used for debt repayment, budget support and specific development projects.
Additionally, lawmakers urged the Treasury to reduce non-recurrent spending and gradually increase allocations to development projects from the current 3.6 per cent of GDP to 10 per cent over the medium term in a bid to support economic growth.