Kenya Launches 2025 Medium-Term Debt Strategy to Enhance Public Debt Management
The Kenyan government has launched the 2025 Medium-Term Debt Strategy (MTDS) to manage public debt effectively over the next three years. The strategy aims to reduce Treasury bills, extend debt maturity, and promote domestic debt markets while targeting a balanced financing approach. Presently, Kenya’s public debt stands at Sh11.02 trillion, necessitating strategic governance to maintain sustainability amidst economic challenges.
The Kenyan government has introduced the 2025 Medium-Term Debt Strategy (MTDS), which emphasizes minimizing the costs and risks associated with public debt while ensuring sustainability over the forthcoming three-year period. During the announcement in Nairobi, Cabinet Secretary for the National Treasury and Economic Planning, John Mbadi, underscored the importance of prudent debt management due to evolving economic conditions and financial dynamics worldwide.
This strategy, applicable from 2025 to 2028, aims to gradually reduce the quantity of Treasury bills, lengthen the maturity of public debt instruments, enhance the domestic debt market, and secure a balanced approach between concessional and commercial external financing. Mbadi stated the total public debt reached Sh11.02 trillion by March 2025, a rise from Sh10.5 trillion in June 2024.
Notably, this amount constitutes 65.7 percent of Kenya’s GDP, with Sh5.9 trillion as domestic debt and Sh5.09 trillion as external debt. Multilateral institutions, primarily the World Bank, represent 53.9 percent of external debt, alongside bilateral lenders at 21.4 percent and commercial lenders at 24.7 percent. Additionally, government-guaranteed debt for state corporations like Kenya Ports Authority, Kenya Electricity Generating Company, and Kenya Airways is recorded at Sh100 billion.
The strategy aims to diversify the public debt structure, which is critical in mitigating exchange rate risks. As Marked by Mbadi, fluctuations in the exchange rate have resulted in a current external debt stock that is lower, not due to loan repayments, but due to these changes. Presently, the value of public debt corresponds to 63 percent of GDP—exceeding the legal threshold of 55 percent—as the government has until November 2029 to comply with this requirement.
Consequently, the MTDS outlines a target borrowing framework of 25 percent from external channels and 75 percent from domestic markets, aspiring to reduce the debt-to-GDP ratio and the present value of debt by 2028. The government will incorporate annual borrowing plans while conducting semi-annual cost and risk assessments to monitor and adapt as necessary.
Amid these efforts, Mbadi acknowledged challenges such as credit rating downgrades impacting borrowing costs and diminishing investor confidence, alongside the complexity introduced by global market volatility and rising interest rates. The high-interest landscape has amplified debt servicing costs, but improvements in macroeconomic conditions may facilitate a return to lower rates.
To counter declining external financing, plans to fortify the domestic debt market through various reforms and the issuance of medium-to-long-term debt securities are underway. Dr. Chris Kiptoo, the Principal Secretary of National Treasury, emphasized the significance of achieving a balanced budget, which would decrease the necessity for borrowing.
Moreover, James Muraguri, CEO of the Institute of Public Finance, encouraged public engagement in debt policy discussions, asserting that debt strategies should resonate with the concerns of the citizenry. Overall, the 2025 MTDS provides a detailed framework for managing Kenya’s debt while striving for economic stability. Successful implementation hinges on rigorous monitoring and engagement within financial markets, alongside favorable economic conditions.
In conclusion, the 2025 Medium-Term Debt Strategy represents a significant step towards sustainable public debt management in Kenya. By focusing on diversified financing options and promoting a robust domestic debt market, the government aims to reduce overall debt costs and mitigate financial risks. Continuous evaluation and public engagement are vital in realizing the strategy’s objectives and ensuring economic stability.
Original Source: www.kenyanews.go.ke
