The private sector continues to bear the brunt of increased government borrowing, according to the 2025 Economic Survey released by the Kenya National Bureau of Statistics (KNBS).

Despite an overall 2.2 per cent increase in credit extended to Sh7.2 billion in 2024, credit to the private sector fell by 6.6 per cent — a clear indicator of crowding out as the government ramped up its domestic borrowing to finance fiscal operations.

“Total credit advanced by commercial banks and non-bank financial institutions increased by 1.4 per cent to Sh7,140.3 billion as at December 2024, with credit advanced to the private sector accounting for 66.9 per cent while credit to the National Government accounted for 31.6 per cent. Total advances to the national government grew from Sh2.22 trillion as at the end of December 2023 to Sh2.31 trillion as at December 2024.

“Credit to County governments declined from Sh5.4 billion at the end of December 2023 to Sh2.2 billion as at the end of December 2024,” the report indicated.

The report reveals a sharp uptick in public sector credit, underscoring the government’s growing appetite for domestic funds amid constrained access to international debt markets and ongoing fiscal consolidation measures. During the year under review, the Central Bank of Kenya (CBK) lowered the Central Bank Rate to 11.25 per cent in the period ending December 2024, down from 13.0 per cent as at June 2024, in efforts geared towards lowering the cost of borrowing.

Interest rates

“Loans and advances rate by commercial banks rose from 14.63 per cent at the end of December 2023 to 16.89 per cent in December 2024. Interest rates on overdrafts rose from 14.65 per cent in December 2023,” indicated the survey.

Economists warn that this trend could dampen economic recovery efforts and stifle job creation, especially in credit-sensitive sectors like manufacturing, real estate, and small businesses. Ndung’u Gathu, an economist, told Business Hub that the displacement of private investment by public borrowing is becoming more pronounced saying that the move not only affects business confidence but also limits the pace of economic expansion.

“This report calls for a rebalancing of credit allocation and greater efforts to mobilise alternative funding sources, such as concessional loans and public-private partnerships, to avoid undermining private sector growth,” he stated.

As Kenya navigates a challenging fiscal environment, policymakers face a delicate balancing act between financing development and fostering a vibrant, credit-accessible private sector.