The International Monetary Fund (IMF) has warned that rising global borrowing costs could increase financial pressure on governments, as Kenya prepares to manage Ksh 1.7 trillion in public debt due for repayment between now and June 2027.

The repayment burden presents a major challenge for the National Treasury, which must secure funds to meet maturing obligations while limiting the cost of new borrowing. The pressure comes as the government continues to balance debt repayments against spending on essential public services and development projects.

According to the Treasury’s latest Annual Public Debt Management Report, the Ksh 1.7 trillion represents 12.7 per cent of Kenya’s Ksh 13.2 trillion public debt stock at the end of June 2026. The proportion is above the government’s target of 11.9 per cent, indicating that more debt is falling due within a year than planned under its debt management strategy.

In its October 2026 World Economic Outlook, the IMF identified rising sovereign bond yields, inflation risks and high public debt as threats to financial stability. The Fund noted that higher benchmark interest rates in advanced economies were pushing up borrowing costs for emerging markets.

The warning is significant for Kenya because the cost of refinancing existing obligations depends partly on the interest rates investors demand when the government returns to financial markets.

Short-term borrowing increases pressure

When government bonds mature, the Treasury must repay investors using available funds or raise new money to settle the obligations. It can issue fresh securities to replace maturing ones, allowing the government to spread payments over time.

However, refinancing does not eliminate debt. If the replacement securities carry higher interest rates, the government may pay more to borrow the same amount, increasing the cost of servicing its debt in future years.

Kenya’s debt portfolio faces additional pressure from its reliance on short-term domestic securities. Treasury bills accounted for 7.3 per cent of public debt at the end of June 2026, more than twice the government’s target of 3.4 per cent.

Loans whose interest rates are due for repricing within one year accounted for 24.2 per cent of the portfolio, against a target of 17.9 per cent.

These figures point to the risks associated with frequent refinancing. Short-term securities mature more quickly than long-term bonds, forcing the government to seek fresh financing more often. When interest rates rise, the Treasury may have to borrow at more expensive terms.

The IMF has also warned that high debt levels and rising financing costs can reinforce each other, leaving governments with fewer options to manage their budgets.

Debt service consumes government revenue

The Treasury projects debt service of approximately Ksh2.30 trillion in the financial year ending June 2027, equivalent to 79.8 per cent of projected ordinary revenue.

Debt service includes both principal repayments and interest payments. Principal is the original amount borrowed, while interest is the cost paid to lenders for providing the funds.

The projected Ksh2.30 trillion is therefore separate from the Ksh 1.7 trillion in debt falling due within a year.

The high share of revenue committed to debt obligations leaves less money available for healthcare, education, roads, water infrastructure and other government priorities. Any increase in borrowing costs could further narrow the resources available for these services.

Kenya’s public debt remains sustainable, according to the Treasury’s assessment, but carries a high risk of debt distress. This means the government faces significant vulnerabilities if financing conditions worsen or its ability to meet obligations weakens.

Treasury seeks to spread repayments

The government has undertaken several measures to manage upcoming maturities and reduce pressure on its finances.

During the financial year to June 2026, the Treasury conducted domestic bond switches and buybacks worth Ksh66.8 billion. It also raised $2.25 billion through a Eurobond issue in February, partly to refinance existing obligations and repurchase portions of bonds maturing in 2028 and 2032.

Bond switches allow investors to exchange securities nearing maturity for longer-dated bonds, while buybacks enable the government to retire selected securities before their scheduled repayment dates.

The Treasury’s strategy also includes extending debt maturities, reducing reliance on short-term borrowing and seeking concessional loans, which generally offer more favourable terms than commercial financing.

The coming year will test the effectiveness of these measures as Kenya seeks to meet its obligations without increasing its borrowing costs unnecessarily. The outcome will depend on market conditions, government revenue and the availability of affordable financing.