Kenya has launched the 2025 Medium-Term Debt Strategy (MTDS) to address public debt management, aiming to reduce costs and risks while enhancing sustainability. The strategy outlines plans to decrease Treasury bills, extend debt maturities, and strengthen the domestic debt market. Current public debt is sh11.02 trillion, with strategies to lower the debt-to-GDP ratio significantly by 2028. The government’s success hinges on disciplined execution and economic stability.
The Kenyan government has officially introduced the 2025 Medium-Term Debt Strategy (MTDS), aimed at minimizing public debt costs and risks while ensuring sustainability through 2028. During the announcement in Nairobi, John Mbadi, the National Treasury and Economic Planning Cabinet Secretary, stressed the importance of careful debt management in light of economic uncertainties and evolving global financial conditions.
The MTDS intends to gradually decrease Treasury bill issuance while extending public debt maturities. It aims to broaden the domestic debt market and maintain a balanced approach between concessional and commercial external financing. As of March 2025, Kenya’s public debt had reached sh11.02 trillion, marking an increase from sh10.5 trillion in June 2024, equivalent to 65.7 percent of the GDP.
Out of the total debt, domestic debt constituted sh5.9 trillion, while external debt was at sh5.09 trillion. Multilateral lenders, such as the World Bank, formed 53.9 percent of the external debt, with bilateral and commercial lenders holding 21.4 percent and 24.7 percent, respectively. Additionally, government-backed debt from state corporations is estimated at Sh100 billion.
To mitigate exchange rate risks, the CS highlighted the necessity of a diversified debt structure and a robust domestic debt market. Notably, fluctuations in exchange rates impacted the external debt stock; from sh6 trillion in January 2024 to sh5 trillion today. Current public debt is valued at 63 percent of GDP, exceeding the legal limit of 55 percent, necessitating adjustments by November 2029.
To achieve targeted financial objectives, the MTDS will pursue a borrowing structure of 25 percent from external and 75 percent from domestic markets, aiming to lower the debt-to-GDP ratio from 63.7 percent to 57.8 percent by 2028. Mr. Mbadi stated that the government would implement an annual borrowing plan and conduct semi-annual assessments to ensure strategic adjustments.
However, challenges, such as credit rating downgrades, have escalated borrowing costs and diminished investor confidence. With global market instability and increasing interest rates complicating debt management, Mr. Mbadi noted that as economic conditions improve, interest rates may decrease, easing debt servicing burdens.
In light of reduced external financing, the Treasury aims to strengthen the domestic debt market using medium-to-long-term securities, while enhancing exports and foreign currency reserves to promote external debt sustainability. Dr. Chris Kiptoo, the National Treasury Principal Secretary, emphasized the need for balanced budgets to reduce reliance on borrowing, noting Kenya’s historical lack of budget balance.
James Muraguri, CEO of the Institute of Public Finance (IPF), encouraged active public engagement with debt policy, emphasizing that these strategies should resonate with the populace’s concerns. The 2025 MTDS delineates a strategy for managing Kenya’s debt with an emphasis on cost reduction, risk minimization, and increased domestic market involvement, which are fundamental to achieving long-term financial stability. Kenya’s success in executing this strategy hinges on disciplined application, ongoing market interaction, and a supportive economic environment.
The unveiling of the 2025 Medium-Term Debt Strategy reflects Kenya’s commitment to prudent public debt management amidst fluctuating economic conditions. With a focus on minimizing costs and risks, enhancing domestic market participation, and ensuring sustainable financing, the government has laid a structured plan for debt management through 2028. The efficacy of this strategy will largely depend on its disciplined implementation and responsiveness to the changing financial landscape.
Original Source: www.kenyanews.go.ke
