Kenya borrows Ksh109B in two weeks as debt appetite continues
By Victor Mukabi, July 21, 2025Shrinking loan facilities from the credit market have continued to have a toll on Kenya’s domestic market, particularly the private sector, as the government’s appetite for debt continues to be more imminent.
The latest Central Bank of Kenya (CBK) weekly bulletin highlights that the current domestic debt as of July 4, 2025, this year, stood at Ksh6.312 trillion, slightly down from Ksh6.331 trillion, representing a Ksh19 billion drop.
However, the amount increased by Ksh109 billion between June 13 and June 25 this year, in two weeks, to mark an all-time high.
The growth has been high since May 16, this year, a period when the National Treasury Cabinet Secretary John Mbadi made it open that the country would have to look inwards in accessing loans for its projects after the credit market depicted signs of contraction.
“While the weekly decline is notable, debt levels remain historically high, reinforcing concerns about Kenya’s growing reliance on domestic borrowing and its implications for debt sustainability, interest costs, and access to credit for the private sector,” the Institute of Public Finance said in a commentary.
This reflects the implementation of the borrowing strategy by the Kenya Kwanza government to fund the over Ksh900 billion budget deficit in the Ksh4.2 trillion 2025/26 financial year budget.
According to the data, the domestic debt is largely dominated by the treasury bonds which as of July 4, 2025, stood at the rate of 80.96 per cent up from the 80.71 per cent recorded in June 27, 2025, then followed by treasury bills which stood at the rate of 16.43 per cent of the total debt bringing the government securities as a debt instrument to 97.39 per cent.
However, the treasury bills in recent weeks have been recording an underperformance, falling to meet the usual advertised amount of Ksh24 billion.
Treasury bill auction
For instance, the instrument attracted bids amounting to Ksh22.8 billion during the week ending July 10, 2025, slightly above the Ksh21.8 billion recorded during the week ending July 4, 2025.
During the week, the government accepted bids amounting to Ksh13.098 billion.
“The Treasury bill auction of July 10 received bids totalling Ksh22.8 billion against an advertised amount of Ksh24.0 billion, representing a performance of 94.9 per cent. Interest rates on the 91-day, 182-day and 364-day Treasury bills remained stable,” CBK said in its weekly bulletin.
At the same time, the reopened 20-year and 25-year treasury bonds received bids totalling Ksh76.9 billion against an advertised amount of Ksh50 billion, representing a performance of 153.8 per cent.
Out of this, the government accepted bids amounting to Ksh66.65 billion.
Other domestic debt instruments remained subdued at the rate of 1.77 per cent as the International Monetary Fund (IMF) fund to the government takes 1.28 per cent.
On sector-specific lenders, banking institutions topped the chart after appearing to have contributed 45.03 per cent of the total money lent to the government, which is approximately Ksh2.8417 trillion, as of July 4, 2025.
This amount is up from the Ksh2.361 trillion recorded on July 3 of 2024, when the domestic debt stood at Ksh5.235 trillion, with the total debt standing at Ksh10.398 trillion.
In the current financial year, the banking sector as a holder was followed by the pensions funds, which stand at 28 per cent, which is approximately Ksh1.767 trillion, followed by other investors, which stood at 12.92 per cent, Ksh815.03 billion and the insurance sector, which had its rate to debt at 7.25 per cent which is approximately Ksh457.02 billion.
While this helps in cushioning the country’s public debt from the currency-related shocks, the general economic performance might be largely impacted as the critical sector of the economy, the Private sector, is likely to be significantly impacted.
The private sector largely relies on loans from financial institutions such as commercial banks to fuel their business growth; however, most of the players, especially the micro, small and medium enterprises (MSMEs), which have been highlighted as high risk by the banking sector.
As a result, banks tend to offer loans to the sector at higher rates based on their credit performance, a factor which locks out the majority of them.
Non-performing loans
Close bank sources highlight that the rate at which loans are extended to the private sector is largely influenced by the rate of non-performing loans, which emanate from unpaid debts, those beyond 90 days after the repayment deadline.
Currently, the rate stands at 17.6 per cent, according to CBK.
“NPLs are the major driver of the high interest rates by banks. Initially, we used to scramble for customers, but now that is not the case. This has been influenced by the fact that the economy is not performing well, and you can tell from the pending bills side and key institutions’ funding,” the source told People Daily.
Even though the regulator is trying to bring down the rates at which they are borrowing from the public, banks will always choose the government security over the private sector due to the guarantee of payment.
“To prevent the risk of crowding out the private sector, we are bringing down the interest rates for government securities; the 91-day Treasury bills are now below the 10 per cent rate, and the rest are also following suit. We hope to see a further reduction in the months to come,” CBK Governor Kamau Thugge said during a previous post-MPC meeting.
However, more stakeholders in the private sector remain optimistic that the sector will access affordable loans in the financial year.