Controller of Budget calls for urgent reforms on $77.3M debt

• Controller of Budget Margaret Nyakang’o said the public debt stock increased by 3% from KSh10.58 trillion as of June 2024, to KSh10.93 trillion as of December 2024.
• Nyakang’o said major funds, including the Housing Fund, the Railway Development Fund, and the Petroleum Levy, are not part of the Consolidated Fund.
• She has raised concerns about the government’s reliance on overdrafts from the Central Bank of Kenya (CBK) to service both domestic and external debt.

Kenya’s Controller of Budget Margaret Nyakango is calling for the adoption of prudent strategies focused on debt management and revenue collection reforms to check the country’s piling debt. According to her, allocation towards servicing the public debt in the financial year 2024-2025 is set at KSh1.91 trillion, compared to KSh1.87 trillion in 2023-2024, with the country’s average time to maturity for public debt reducing to 7.8 years, down from 9.4 years in 2023.

The allocation comprised KSh809.57 billion for principal and KSh1.01 trillion for interest payments.

Allocation towards external debt comprised of KSh330.71 billion for principal and KSh259.91 billion for interest, while domestic debt comprised KSh569.89 billion and KSh749.97 billion towards principal redemption and interest payment, respectively.

In her report to the National Assembly Liaison Committee to consider the medium-term debt management strategy for the 2025-26 financial year, Nyakango has noted that the expenditure on public debt in the first six months of 2024-2025 financial year (July-December) amounted to KSh666.34 billion, compared to KSh597.58 billion in a similar period in 2023-2024.

The increase was mainly due to the settlement of domestic debt relating to treasury bills and bonds, which stood at KSh432.83 billion compared to KSh355.17 billion paid in a similar period previous year.

Controller of Budget Concerns

External debt servicing amounted to KSh231.29 billion, comprising KSh129.60 billion on principal payment, KSh100.89 billion on interest payment, KSh553.67 million on commitment fees, KSh977,540 on penalties paid first, and KSh249.84 million on other charges.

“Given the above, we note that the allocation to paying public debt has increased by two per cent, which should be worrying as it reduces resources for undertaking key government programmes,” she says in the report as she calls for fiscal interventions, even as the government continues to borrow to fund budget deficits with a higher budget of KSh4.2 trillion in the 2025-26 financial year.

The public debt stock increased by three per cent from KSh10.58 trillion as of June 2024, to KSh10.93 trillion as of December 2024. The government targeted to finance the 2024-25 budget through a deficit financing of KSh1.57 trillion (to be funded by domestic borrowing, external loans and grants at KSh978.30 billion and KSh593.50 billion, respectively).

The domestic borrowing of KSh978.30 billion is comprised of net domestic borrowing of KSh408.41 billion and internal debt redemptions of KSh569.89 billion. Findings from the review of the 2025 Medium-Term Debt Strategy by the CoB has recommended among other things, a further reduction in the debt threshold.

While the total nominal public debt as a percentage of GDP has been declining, decreasing from 71.9 per cent in 2022 to 65.7 per cent in June 2024 and 52.5 per cent in 2029, it remains higher than the International Monetary Fund’s recommended threshold of 50 per cent for developing countries.

Nyakango also wants the debt mix improved noting that as it currently stands, it raises concerns over the government’s ability to respond to economic shocks due to limited fiscal space. “The elevated debt servicing burden significantly challenges Kenya’s fiscal sustainability and economic resilience,” she said.

To address this issue, CoB has recommended consistent review Kenya’s debt portfolio to emphasise concessional loans with lower interest rates and favourable repayment terms over expensive commercial borrowing.

Further, it calls for the establishment of a sinking fund for loan redemption by bringing into operation Section 50(8) of the Public Finance Management Act 2012. The dedicated fund will ensure systematic savings for loan repayment, reduce reliance on new debt for refinancing and enhance fiscal discipline in debt management, Nyakango noted.

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Nyakang’os Budget Concerns 

While appearing before the Finance and Planning Committee, Nyakang’o raised concerns over the operation of key government revenue streams outside the Consolidated Fund, warning that this practice makes it difficult to audit the funds. The controller of budget said major funds, including the Housing Fund, the Railway Development Fund, and the Petroleum Levy, are not part of the Consolidated Fund and therefore do not fall under her direct oversight.

While acknowledging that the law permits certain funds to be operated outside the Consolidated Fund, she stressed the need for continuous assessment by Parliament to determine whether these funds should be reintegrated for greater accountability.

“There’s a lot of money that does not pass through the Controller of Budget’s office, including the Housing Fund, the Railway Development Fund, and the Petroleum Levy,” said Nyakango. “These funds are legally allowed to operate outside the Consolidated Fund, but it does not have to remain this way. Parliament should continuously review whether such funds should be brought back under government oversight.”

Nyakang’o urged the finance and planning committee chaired by Molo MP Kimani Kuria, to assess which funds have outlived their usefulness and should be reintegrated into the Consolidated Fund.

“I would like leave it to this committee, it will be telling us which fund has outlived its use so that it can be brought back to the fold. And I’m all for it. You want the SHIF fund, housing fund, to come to the consolidated fund we look after it,” added Nyakang’o.

Additionally, the controller of budget raised concerns about the government’s reliance on overdrafts from the Central Bank of Kenya (CBK) to service both domestic and external debt. She argued that the CBK should not be charging the Treasury high interest rates on overdrafts, considering that the money being lent to the government originates from its own accounts.

(Exchange rate: KSh1 = US$0.0077)