Kenya’s Debt Servicing Costs Surge by Sh131 Billion Amid Eurobond Buyback
Kenya’s public debt has reached a staggering Sh10.9 trillion, with the cost of servicing this debt rising by Sh131 billion to approximately Sh2 trillion, according to recent government reports. This increase follows strategic financial maneuvers, including the buyback of Eurobonds and loans from the Trade and Development Bank, aimed at managing the country’s mounting debt obligations.
Kenya’s public debt, now at Sh10.9 trillion, has been a growing concern with reports that 67% of GDP consumed by debt, surpassing the recommended 55% threshold. The National Treasury’s actions, such as the $1.443 billion Eurobond buyback in February 2024, funded by a new $1.5 billion Eurobond at a higher interest rate of 10.375% (compared to the original 6.875%), have contributed to the escalating servicing costs. This buyback was intended to retire maturing debt but has increased annual interest expenses, adding pressure to the national budget.
The Sh131 billion increase in debt servicing costs brings the total to around Sh2 trillion, a figure that aligns with sentiments expressed by MP Ndindi Nyoro, who noted that Ksh1 trillion is spent annually on interest alone. Official projections for FY 2025/26 estimate debt servicing at Sh1.606 trillion, up by Sh265.8 billion from the previous year, suggesting the reported Sh131 billion may reflect a specific component, such as external debt or buyback-related costs. Treasury CS John Mbadi has admitted that two-thirds of revenue is consumed by debt servicing, underscoring the fiscal strain.
The government’s decision to repurchase Eurobonds and Trade and Development Bank loans has been a double-edged sword. While it helps manage near-term maturities, the higher interest rates on new borrowings have driven up costs. For instance, the new Eurobond’s interest cost is approximately Ksh20.14 billion annually, compared to Ksh12.85 billion for the retired portion, adding Ksh7.29 billion yearly. Additional loan repurchases, though less detailed in public reports, have likely compounded these expenses.
The rising debt burden has sparked warnings of a potential default, raising concerns about Kenya joining the “Africa Defaulters Club.” The debt service-to-revenue ratio, reported at 69.6% in June 2024, exceeds IMF thresholds, limiting funds for social services and infrastructure. The government’s shift toward commercial loans, as noted in a March 2025 African Business report, strains relations with concessional lenders like the IMF, whose $3.6 billion program expired in April 2025.
The Treasury has defended its debt management strategy, emphasizing the need to balance immediate obligations with long-term sustainability. The 2025 Medium-Term Debt Strategy aims to reduce the fiscal deficit to 3.9% of GDP through a mix of external and domestic borrowing. However, with 7 out of 10 tax shillings going to debt servicing, public discontent is growing, and calls for fiscal prudence are intensifying.
Kenya faces a critical juncture as it navigates its debt crisis. The next significant maturity, a $1 billion Eurobond due in 2028, looms large, and the government’s ability to secure affordable financing will be crucial. Economists urge a focus on boosting revenue collection and reducing reliance on costly commercial loans to alleviate the fiscal burden and restore economic stability.