Kenya’s public debt hits 69.9% of GDP as interest payments soar to 5.8%, World Bank warns

Kenya's public debt reached 69.9% of its Gross Domestic Product (GDP) by June 2026, according to a World Bank report. The report warns that the country's increasing reliance on domestic borrowing poses growing fiscal and financial sector risks. Domestic debt accounted for 56.2% of total debt, with most of the deficit being financed through net domestic borrowing.

Concerns were raised about the relationship between government debt and the banking sector, as financial institutions become more exposed to government securities. Greater reliance on domestic borrowing increases banks' exposure to government debt, deepening the sovereign-bank nexus and raising the risk of government borrowing crowding out private sector credit.

This crowding out refers to the government competing with private businesses for limited funds in the domestic financial market, potentially limiting credit availability for businesses. Higher interest payments, totaling 5.8% of GDP, also limit fiscal space and increase the risk of debt distress. The government must allocate substantial resources to service existing debt, leaving less room for spending on essential sectors like healthcare, education, infrastructure, security, and social protection.

This limited fiscal space reduces the government's flexibility to respond to economic challenges or increase development expenditure without additional borrowing. The growing debt burden affects businesses, taxpayers, and households, as increased borrowing from local banks could reduce available credit for businesses seeking loans, affecting investment, expansion, and job creation.

Households may also face tighter lending conditions, and the rising cost of debt interest could constrain government spending on essential public services and development projects.