Budget boss seeks specialkitty for loan repayment
By Victor Mukabi, March 4, 2025The Controller of Budget (CoB), Margaret Nyakang’o (pictured), is advocating for the implementation of a sinking fund to cushion the country from rising debt risks as public debt continues to soar.
According to her report, Kenya’s total debt stood at Sh10.93 trillion as of December 31, 2024, up from Sh10.5 trillion on June 30, marking a 3 per cent increase over six months.
A sinking fund is a reserve specifically set aside for debt repayment, where the government systematically allocates funds to reduce its obligations.
The introduction of this mechanism would allow Kenya to better monitor its debt-servicing eforts through contributions from various government sources while also emphasizing the importance of sustainable debt management.
“This dedication will ensure systematic savings for loan repayment, reduce reliance on new debt for refinancing, and enhance fiscal discipline in debt management,” Nyakang’o stated during a meeting with the National Assembly Liaison
Committee at a Nairobi hotel.
Despite debt management strategies aimed at curbing public debt, the report indicates that the country’s debt burden has continued to grow, placing increased pressure on the economy and afecting ordinary citizens.
The debt increase was primarily driven by domestic borrowing, which rose by 8 per cent during the six-month period, reaching Sh5.87 trillion (54 per cent of total debt) by December 31, 2024.
In contrast, external debt accounted for Sh5.06 trillion (46 per cent of total debt), highlighting a significant reliance on both domestic and international lenders.
During that period, banks were among the highest contributors to the debt estimated at Sh2.57 trillion representing 24 per cent. Under this, the central bank contributed Sh62.4 billion representing 1 per cent of the total domestic debt while commercial banks extended Sh2.50 trillion representing 23 per cent.
Non-banks which in this regard refers to pensioners, and individual organization lenders provided the biggest chunk, Sh3.29 trillion taking the other 30 per cent.
“The Committee should note the upward trajectory and that in the current financial year, the public debt stock has risen by 3 per cent from June 2024 to December 2024. Without a thorough reassessment of debt sustainability, continued borrowing could lead to a severe debt trap, constraining fiscal space and limiting the government’s ability to invest in essential services and development initiatives,” she said.
Conversely, the aforementioned external debt decreased by 2 per cent due to the strengthening of the Kenyan shilling against the US dollar currently exchanging at Sh129.19 against the greenback.The controller of budget however cautioned that much as domestic funding is crucial as it cushions the local currency from depreciating, the over reliance which in this regard is paid on high interest rates puts development projects financing at a tight spot.
At the same time, because of the high lending rates associated with the domestic loans, the government even though slowed down on external debts prefers the debts due to the slightly lower rates. Nyakango said that the commercial loans are more expensive due to their short-term limits, forcing the government to prioritise them over development projects, hence feeling the burden when compared to concessional loans which have longer repayment periods.