Kenya Widens Domestic Debt Financing Plan As Treasury Turns To Local Borrowing

By Robai Ludenyi

Kenya’s government is increasingly looking inward to fund its budget, signalling a major shift in how it plans to manage public debt going forward. In a move that reflects both caution and necessity, the National Treasury has expanded its domestic debt financing plan, choosing to borrow more from the local market rather than rely heavily on foreign loans.

The revised borrowing strategy shows that Kenya will raise a significantly larger share of its funding from Treasury bills and bonds sold locally. This adjustment comes as the government prepares for the 2026/2027 financial year amid rising debt pressure and tighter global lending conditions.

Under the new plan, domestic borrowing will account for the biggest portion of the budget deficit. Treasury projections indicate that net domestic financing will rise sharply, while external borrowing has been scaled back. In simple terms, the government is choosing to borrow more from Kenyan banks, pension funds, and investors, instead of depending on dolla or euro denominated loans from abroad.

The Treasury says this approach is deliberate. Borrowing locally reduces exposure to foreign exchange risks, especially at a time when the shilling has faced volatility in recent years. External loans become more expensive when the local currency weakens, increasing repayment costs.

However, the strategy is not without risks. Economists and private sector players warn that heavy domestic borrowing could crowd out businesses. When government securities offer attractive and relatively risk-free returns, banks may prefer lending to the State rather than to small businesses and households. This could make loans more expensive or harder to access, slowing economic growth.

The Treasury insists it is aware of these risks and plans to manage them carefully. Part of the strategy includes issuing longer-term bonds to reduce pressure from frequent refinancing and avoid over-reliance on short-term debt. The goal is to balance government financing needs while keeping credit flowing to the private sector.

Ultimately, Kenya’s widened domestic debt plan reflects a difficult balancing act. The government needs money to run the country and support development, but it must also protect the economy from excessive debt strain. How well this strategy works will depend on disciplined spending, strong revenue collection, and careful management of the local credit market in the years ahead.

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