The government risks defaulting on Sh3.32 trillion in external debt due within a year unless urgent fiscal reforms are implemented, Controller of Budget Margaret Nyakang’o has warned.
Appearing before the National Assembly Public Debt and Privatisation Committee on Monday, Dr Nyakang’o cautioned that rising debt servicing obligations are severely straining public finances and could limit the government’s ability to fund essential sectors such as health, education and social protection.
She attributed the growing risk to persistent fiscal deficits and poor budget planning, noting that Kenya’s public debt had reached Sh12.3 trillion as at December 31,2025. Efforts to reduce the widening budget deficit through expenditure cuts and enhanced revenue collection, she said, have largely been ignored by officials at the National Treasury.
Dr Nyakang’o explained that unrealistic revenue projections have worsened the situation, forcing the government to rely on costly borrowing- mainly from the domestic market to finance its operations. This has increased pressure on debt servicing and heightened fiscal vulnerability.
“The high debt servicing heightens fiscal vulnerability, indicating substantial near-term repayment pressure,” she told the committee, adding that the heavy reliance on short-term borrowing exposes the country to refinancing and rollover risks.
She further revealed that the government has previously delayed payment of Sh53.6 billion in Treasury Bonds by up to two months, raising concerns about its ability to meet future obligations on time. Continued borrowing to service existing debt, she warned, risks pushing the country into a debt trap and potentially a debt spiral.
External factors have also compounded the problem. The depreciation of the Kenyan shilling against major currencies such as the pound sterling and the euro has driven up the cost of servicing foreign debt in local currency terms.
According to the Controller of Budget, the rising proportion of revenue allocated to debt servicing poses a serious threat to sustainability, as more resources are diverted from development and public services. She added that reliance on market-based borrowing exposes the government to fluctuating interest rates, particularly in a high-interest environment.
Kenya’s domestic debt structure, which is heavily concentrated in short-term instruments, has further increased liquidity and refinancing risks. Frequent refinancing of short- to medium-term debt and sovereign bonds continues to expose the government to rollover pressures.
The Sh3.32 trillion due within a year forms part of a larger Sh5.5 trillion external debt stock expected to mature over the next decade. Other repayments include Sh197.72 billion due within two years, Sh7.74 billion within three years, Sh134.03 billion within five years, and Sh393.51 billion within 10 years. Additionally, about Sh1.41 trillion, representing 26 per cent of the external debt, will mature slightly beyond the 10-year period.
Dr Nyakang’o also criticised the National Treasury for weak budgetary discipline, pointing to the use of constitutional provisions that allow additional spending beyond approved budgets. She noted that Ministries, Departments and Agencies have increasingly relied on these provisions, complicating fiscal management.
The government has already sought parliamentary approval for an additional Sh245.9 billion in expenditure under Article 223 of the Constitution, on top of the Sh4.2 trillion budget approved in June 2025. Of this, Sh185.8 billion has already been spent and is awaiting retrospective approval by the National Assembly.
The request exceeds the constitutional limit of 10 per cent of the approved budget by 1.1 per cent, raising concerns over adherence to public finance laws. Article 223 stipulates that such spending should not surpass this threshold unless Parliament grants special approval.
Dr Nyakang’o warned that continued fiscal indiscipline undermines Section 12(2) of the Public Finance Management Act, which requires the National Treasury to ensure transparency, accountability and effective management of public finances.
She urged the government to adopt credible fiscal consolidation measures to restore stability and reduce the risk of default, warning that failure to act could further weaken the country’s financial position.
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