The National Treasury has outlined a significant shift in its Medium-Term Debt Strategy, signaling a move toward greater reliance on domestic borrowing in the coming years. The strategy projects that 82 percent of the government’s financing needs between the 2026/27 and subsequent fiscal periods will be sourced from the local debt market, with external funding expected to cover only 18 percent. This reevaluation follows recent years in which domestic borrowing already surged due to external funding shortfalls.
Officials at the treasury argue that this strategic pivot toward domestic markets is intentional and designed to enhance debt sustainability. The government plans to deepen the domestic debt market and improve liquidity management, with the explicit goal of reducing the overall debt burden while protecting essential national investments. As part of this approach, the government is exploring innovative financing instruments, including the potential issuance of digital bonds via mobile money platforms.
The renewed emphasis on local borrowing comes after recent fiscal challenges. In the year to June 2021, delays in external disbursements forced the Treasury to exceed its initial borrowing mix targets, resulting in 83 percent of net deficit financing being drawn from domestic sources that were far above the planned 55 percent. The borrowing target for the 2026/27 financial year has now been revised upward by approximately KES 100 billion, reflecting the continued prioritization of local markets.
Treasury’s Direct Management Actions
The composition of domestic debt is also set to evolve. While recent years saw a higher uptake of short-term Treasury bills, the Treasury intends to return to issuing a greater proportion of longer-dated bonds to extend the average time to maturity of domestic debt. As of June 2025, outstanding Treasury bonds stood at KES 1.03 trillion, underscoring the scale of the domestic portfolio. With these measures, Kenya aims to build a more stable and self-reliant debt structure in the medium term.
