Navigating Kenya’s Fiscal Landscape

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By CPA Peter Kibet Kitur

 An Overview of Public Debt Management

In the field of national finances, managing public debt is a crucial aspect of economic governance. Kenya, like many nations, grapples with the challenge of balancing fiscal needs and revenue limitations. This feature examines Kenya’s public debt landscape, and unravels the complexities that define its legal framework and strategies for effective debt management.

Grounded in constitutional provisions and the Public Finance Management Act of 2012, we explore Kenya’s approach through the lens of the Public Debt Management Office (PDMO), and shed light on its functions, reforms, and the current state of the country’s public debt. We also examine the legal foundations and proactive measures that underpin Kenya’s efforts to navigate the complexities of public debt.

Public debt comprises all government financial obligations attendant to loans raised or guaranteed and securities issued to finance fiscal deficit. In essence, public debt emanates from the need to fund government deficit arising from an expenditure exceeding revenue. Kenya’s debt sources include external creditors (multilateral, bilateral and commercial lenders) and domestic market through loans and issuance of debt securities. Public debt management is an integral part of macroeconomic environment in any economy. 

Prudent debt management based on international best practices requires that its processes be guided by enabling statutes.Sound legal frameworks contribute to achieving the primary objective of borrowing, which is to minimize costs and maintain prudent levels of risk

Kenya’s public debt management that is borrowing, debt servicing, debt recording and reporting is guided by the Constitution of Kenya (Supreme law of Kenya), the Public Finance Management (PFM) Act, 2012; (The Primary law in managing public finances in Kenya); and the attendant Regulations namely the PFM (National Government) Regulations, 2015 and the PFM (County Governments) Regulations, 2015 (Secondary statutes).

The Constitution of Kenya, 2010: Article 214 (2) defines ‘public debt as loans raised or guaranteed and securities issued and guaranteed by the national government. It gives powers to parliament to provide public debt management legislation. The Public Finance Management (PFM) Act, 2012, Section 62 (1) (2) (3) and Section 63 provide for the establishment of the Public Debt Management Office (PDMO) within the National Treasury. 

PFM (National Government) Regulations, 2015 and the PFM (County Governments) Regulations, 2015: The Regulations sets the public debt limit as a numerical figure of Ksh. 10 trillion, however, there are ongoing efforts to amend it to a debt anchor of 55 percent of debt to GDP ratio in present value terms. The regulations also provide for proper financial records, auditing of debt accounts, reporting and disclosure on loans and issuance of guarantees. In addition, it guides borrowing by County Governments and State-Owned Enterprises (SOES).

The Public Debt Management Office 

The Public Debt Management Office is established pursuant to PFM Act 2012, 62. (1) and that it is within the National Treasury.  According to the Act Sec. 62 (3), objectives of the Public Debt Management Office shall be to minimize the cost of public debt management and borrowing over the long-term taking account of risk; promote the development of the market institutions for Government debt securities; and 2012 Public Finance Management No. 18 65; to ensure the sharing of the benefits and costs of public debt between the current and future generations. 

According to PFM Act 2012, 63, the functions of the Public Debt Management Office shall include:

(a) Carrying out the government’s debt management policy of minimising its financing cost over the long-term taking account of risk;

(b) Maintaining a reliable debt data base for all loans taken by the national government, county governments and their entities including other loans guaranteed by the national government; 

(c) Preparing and updating the annual medium-term debt management strategy including debt sustainability analysis; 

(d) Prepare and implement the national government borrowing plan including servicing of outstanding debts; 

(e) Acting as the principal in the issuance of Government debt securities on behalf of the National Treasury; 

(f) Monitor and evaluate all borrowing and debt-related transactions to ensure that they are within the guidelines and risk parameters of the debt management strategy; 

(g) Process the issuance of loan guarantees including assessment and management of risks in national government guarantees; 

(h) Transact in derivative financial instruments in accordance with best international practices benchmarked to the debt management offices of other governments that are internationally respected for their practices.

The Public Debt Management Office (PDMO) has led several reforms in debt management. These encompassed deepening the domestic debt market to secure government funding reliably at minimized costs and acceptable risk levels, establishing Sinking Fund regulations for effective debt obligation settlement risk management, enhancing the PDMO’s operational capacity to fulfill its responsibilities, broadening borrowing sources, transitioning from a numerical debt limit to a debt anchor, expanding public debt reporting to cover fiscal risks and potential liabilities from Public-Private Partnerships (PPPs), thereby augmenting debt transparency and improving liability management. Additionally, the implementation of the Commonwealth Meridian Debt Management System aimed to automate debt management procedures.

In accordance with the National Treasury, as of June 2023, Kenya’s public debt surged to Ksh 10,248,713 million, constituting 70.6 percent of the GDP, up from Ksh 8,629,047 million in June 2022. This included Ksh 5,416,600 million in external debt and Ksh 4,832,113 million in domestic debt. Trading for Government securities in the secondary market dropped to Ksh 665,151 million in June 2023 from Ksh 872,975 million in June 2022, marking a decrease of Ksh 207,823 million.

The treasury, projections suggest that the total public debt could climb to Ksh 13,192,241 million by June 2027 (Though we are fast approaching this figure in 2023 even when depreciation of Kenya currency is factored), with an anticipated debt service of Ksh 1,899,715 million by FY 2026/27. While Kenya’s debt is within sustainable limits, there’s a notable risk of debt distress, especially concerning the overall and external debt ratings. The fiscal deficit is expected to decrease from 5.4 percent of GDP in FY 2022/23 to 4.4 percent in FY 2023/24 and is projected to remain below 4 percent of GDP in the medium term.


The trajectory of Kenya’s public debt, stemming from the necessity to bridge fiscal deficits, reflects the intricate balance between revenue shortfalls and expenditure needs.  The foundation of sound debt management rests upon a robust legal framework, guiding borrowing practices to ensure minimal costs and prudent risk levels. Kenya’s approach, guided by the Constitution, the Public Finance Management Act, and associated regulations, sets the stage for meticulous debt management encompassing borrowing, servicing, recording, and reporting. The PDMO’s multifaceted functions, reforms, and initiatives aimed at enhancing transparency, liability management, and market development underscore its important role in steering the country’s debt course. The country’s journey towards balanced, sustainable debt management demands continuous vigilance, prudent decision-making, and adaptation to evolving global financial landscapes

The writer is a Tax consultant with Bon and Drew Associates, serves in public sector, is the ICPAK Central Rift Region’s Branch Chairman and a member of ICPAK’s Devolution subcommittee. [email protected].


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