NAIROBI, Kenya, Nov 24 — Kenya’s sustained surge in domestic borrowing is increasingly squeezing the private sector’s access to credit, a new World Bank assessment has warned, raising concerns about weakened investment and slower job creation in the months ahead.
The latest Kenya Economic Update shows the government ramped up net domestic borrowing to 5.0 percent of GDP in FY2024/25 — a 1.2-percentage-point rise from the previous year and above the budget target — deepening competition for funds within the local financial market.
“The sustained increase in domestic borrowing by the public sector continues to limit Kenya’s private sector access to credit.”
“The sustained growth in government borrowing from domestic sources has raised concerns about crowding out private sector’s access to credit.”
According to the report, commercial banks now hold 42.6 percent of Kenya’s domestic debt, reflecting a growing preference for lending to government over the private sector due to lower risk and attractive returns. This shift has dampened credit flows to businesses already grappling with high financing costs and subdued economic activity.
Short-term domestic borrowing is also rising sharply. The share of Treasury bills increased to 16.4 percent in FY2024/25 from 11.4 percent the previous year, while Treasury bonds fell from 85.5 percent to 80.8 percent over the same period. The Bank warns this trend heightens rollover risks as more debt matures sooner, raising refinancing pressures for the National Treasury.
Meanwhile, net external financing fell to 1.0 percent of GDP in FY2024/25 from 1.4 percent a year earlier, signalling Kenya’s growing reliance on the domestic market to plug its fiscal gap.
The report further highlights rising macroeconomic vulnerabilities as total public debt climbed to 68.8 percent of GDP from 67.5 percent, driven by a higher primary deficit. Domestic debt remains the dominant element, accounting for 53.6 percent of total public debt. Kenya remains classified at high risk of debt distress by both the World Bank and IMF.
Debt-servicing pressures are also intensifying, with the average maturity of domestic debt shortening from 8.5 years to 7.4 years over the last two fiscal years — a trend likely to strain liquidity further and push up refinancing costs.
