Kenya’s National Treasury has outlined a range of internal and external challenges affecting the country’s debt management. Treasury CS John Mbadi at a past media briefing. In the recently published draft for the 2025 Medium Term Debt Management Strategy (MTDMS), the Treasury highlighted structural weaknesses, fiscal constraints, and external economic factors that are complicating efforts to stabilise public debt. The Treasury noted that the credit downgrade, which was recently reversed by Moody, had a significant impact on Kenya’s ability to secure favourable loan terms. Consequently, the downgrade led to increased borrowing costs, reduced access to credit markets, lower investor confidence, currency depreciation, and an elevated risk to debt sustainability. Weak public debt legal framework Treasury identified the current public debt legal framework as lacking sufficient empowerment because it does not provide the Public Debt Management Office (PDMO) with the autonomy required to effectively manage public debt.
Additionally, the duplication of legal provisions in the Central Bank of Kenya (CBK) Act and the Public Finance Management (PFM) Act of 2012 has created conflicts, giving CBK unchecked fiscal agency privileges without adequate accountability. Foreign currency exposure and exchange rate risks A large share of Kenya’s public debt is denominated in foreign currencies, exposing the country to significant exchange rate risks. Consequently, fluctuations in global currency markets directly impact debt servicing costs. Additionally, the country is largely exposed to changing regulatory environments and external market volatility. “Adapting to evolving lending patterns and ensuring adherence to international standards is very demanding,” Treasury stated in the draft MTDMS.
Domestic debt challenges
The Treasury remarked that efforts to deepen the domestic debt market have been slowed by the need for legal reforms, which remain difficult to implement due to overlapping authorities between the CBK and the National Treasury. Furthermore, a limited understanding of public debt management among key stakeholders poses an additional challenge. “Limited understanding of public debt management amongst major stakeholders. Public debt is both a highly technical and an emotive subject in the political arena. Need for a sustained capacity building on public debt management (it affects citizen welfare),” Treasury stated. The high stock of maturing Treasury bills has also put liquidity pressures on the government, reinforcing the need to reduce refinancing risks. To address these challenges, the Treasury is advocating for comprehensive reforms, including strengthening the public debt legal framework, improving transparency and efficiency in debt operations, reducing reliance on external debt, and deepening domestic financial markets. Maturing domestic debts Notably, the government is expected to pay back about KSh 185.05 billion for three Treasury bonds set to mature in June 2025.
The CBK has taken steps to alleviate the pressures. As earlier reported on TUKO.co.ke the CBK has invited investors for a buyback auction for the three Treasury bonds. The buyback targets three Treasury bonds: FXD1/2022/003, FXD1/2020/005, and IFB1/2016/009, with maturities of 0.3 to 0.4 years and coupon rates ranging from 11.667% to 12.500%. The CBK plans to raise KSh 70 billion from two re-opened infrastructure bonds during the Treasury bonds auction scheduled for February 12 as earlier reported on TUKO.co.ke. Speculatively the money raised from the two bonds will provide the liquidity needed to complete the buyback on February 19.
Source: TUKO.co.ke
