Debt repayment hits all-time high

A worsening cash crisis looms in government in the next financial year as the state shifts focus to debt repayment.

The latest National Treasury report says government plans to allocate a staggering Sh1.6 trillion towards debt repayment, the highest in history.

The move would shrink government revenues and starve programmes and development of funds.

The revelations are contained in the draft Division of Revenue Bill, 2025 tabled in Parliament last week.

Debt repayment is projected to be the single latest consumer of government revenue in the 2025-26 financial year.

The allocation accounts for 56.53 per cent of the projected Sh2.83 trillion ordinary revenue during the fiscal year.

This leaves 43.47 per cent or Sh1.23 trillion for other expenses, including payment of salaries and allocation to counties.

The government intends to allocate Sh417.96 billion to the devolved units in the fiscal year. This comprises an equitable share allocation of Sh405.06 billion and an additional allocation of Sh12.89 billion.

Constitutional commissions such as the Commission on Revenue Allocation, the National Land Commission and the Salaries and Remuneration Commission have been allocated Sh391.10 billion.

“In the financial year 2025-26, the allocation for payment of public debt-related costs is expected to increase from Sh1.34 trillion allocated in the financial year 2024-25 to Sh1.60 trillion allocated in the financial year 2025-26,” the Bill states.

This reflects an increase of Sh265.8 billion from the last financial year. In 2022-23, the government allocated Sh930.35 billion, down from Sh1.17 trillion in 2021-22.

The latest report by the controller of Budget Margaret Nyakang’o shows that the country’s debt stock stood at Sh10.79 trillion as of September 30 last year.

The debt comprised Sh5.19 trillion due to external lenders (48 per cent) and Sh5.60 trillion due to domestic lenders (52 per cent).

“The public debt stock increased by two per cent from Sh10.58 trillion as of June 30, 2024, to Sh10.79 trillion as of September 30, 2024. External debt increased by 0.3 per cent, while domestic debt recorded four per cent growth attributable to more borrowing in the domestic market,” Nyakang’o’s report states.

This is even as it emerged that the Treasury has continued to borrow money from the domestic and external market to beat the budget deficit.

A Treasury report on state borrowing tabled in Parliament last week showed that the government secured 18 new loans from bilateral and commercial creditors totalling Sh68.7 billion between September and December last year.

Three of these loans were denominated in euros and sourced from three bilateral lenders, while the remaining 15 were in Chinese yuan, acquired from the China Development Bank.

In the Bill, Treasury CS John Mbadi said the increased expenditures for the national government for purposes of debt serving coupled with a weakened shilling against the dollar are taking toll on government revenues.

Mbadi said the Treasury faces financial constraints due to limited access to finance in domestic and international financial markets.

“[There is] low revenue collections attributed to the ongoing geopolitical shocks. The global economy is on a recovery path from the negative shocks in supply chains,” he said.

However, the CS said the government is committed to implementing a fiscal deficit of 4.3 per cent of GDP in the financial year 2025-26.

“This is designated to slow down the accumulation of public debt, improve primary surplus and achieve sustainability,” Mbadi said.

Addressing the media last week, Mbadi painted a picture of a resilient economy despite the shocks on the global stage. The gross domestic debt-to-GDP ratio declined from 71.9 per cent in June 2022 to 66.7 per cent in June last year.

“The present value of the debt-to-GDP ratio dropped from 68.7 per cent in 2023 to 63 per cent in 2024, thanks to exchange rate appreciation and fiscal consolidation efforts,” he said.