President William Ruto’s government plans to raise more than KSh 905 billion from the domestic market in the 2026/2027 financial year as it shifts decisively towards local borrowing to plug the budget deficit.
According to the Medium Term Debt Management Strategy released by the Public Debt Management Office, the administration intends to finance about 82% of the deficit through domestic loans, with only 18% sourced externally. The approach is designed to refinance and better manage Kenya’s public debt, which stood at KSh 12.25 trillion, equivalent to 63.6% of GDP, as of November 2025.
The strategy, overseen by Treasury Cabinet Secretary John Mbadi, positions the local debt market as the government’s primary funding source in the medium term. Treasury officials argue that prioritising domestic borrowing offers a more stable and cost-effective balance while limiting vulnerabilities linked to foreign currency debt.
Under the 2026/2027 to 2028/2029 MTDS, external borrowing will be capped at 18% of total gross financing needs. Of this portion, 12% will come from concessional and semi-concessional loans provided by bilateral and multilateral partners, while commercial borrowing will be reduced to 6%. On the domestic side, the government plans to gradually cut reliance on Treasury bills, extend debt maturities, and increase issuance of medium- to long-term securities.
With the budget deficit for the 2026/2027 fiscal year projected at KSh 1.1 trillion, the 82% domestic share translates to roughly KSh 906 billion to be raised locally within a single year.
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Central Bank of Kenya data shows domestic debt rose slightly from KSh 6.74 trillion in October 2025 to KSh 6.78 trillion in November. Most of this debt is held by financial institutions, followed by government entities, households, non-residents, non-financial corporations and non-profit institutions. Treasury bonds dominate the domestic debt mix, accounting for more than 82%, with Treasury bills making up about 16%.
The borrowing plan comes against the backdrop of a KSh 4.29 trillion budget for the 2025/2026 financial year, which increased recurrent expenditure to KSh 3.1 trillion while trimming development spending to KSh 693.2 billion. The Ministry of Defence emerged as one of the biggest beneficiaries, receiving an allocation of KSh 202.3 billion.
