Treasury doubles domestic borrowing to Sh138bn in July

In July, Kenya's government more than doubled its domestic borrowing, raising Sh138.25 billion from the local market, according to the latest fiscal outturn from the National Treasury. This represents a significant 105.5 percent increase compared to the Sh67.26 billion borrowed in July of the previous year. The higher borrowing was necessary to meet the government's spending needs and debt obligations. Public debt service during the month was recorded at Sh113.75 billion.

The increased reliance on the domestic market by the government may have implications for liquidity, interest rates, and the availability of funds for businesses and households in the Kenyan financial system. The government's borrowing plan for the 2026/27 financial year targets Sh918.1 billion in net domestic financing, with its total fiscal financing requirement amounting to Sh1.02 trillion. In this context, the Sh138.25 billion raised in July constituted about 15 percent of the full-year domestic financing target.

The government intends to utilize short-term Treasury bills primarily to manage its cash requirements, while longer-term Treasury and infrastructure bonds will serve as the primary source of funding for its financing needs. To enhance the domestic debt market, the government plans to introduce a pilot market-making framework and an electronic over-the-counter trading platform.

Additionally, it will reopen existing bonds and explore other potential funding sources, such as sovereign bonds, Samurai bonds, Sukuk, sustainability-linked bonds, and diaspora bonds.

Despite the higher borrowing levels, government revenue improved in July, with tax collections increasing by 13.85 percent year-on-year to Sh195.30 billion. Recurrent expenditure was Sh142.81 billion, while development spending reached Sh29.33 billion. Moreover, the equitable share distributed to counties amounted to Sh21.4 billion.