The government started the new financial year with a heavy appetite for local borrowing, raising Ksh 138.25 billion from the domestic market in July as it worked to meet its financing needs.
The latest fiscal outturn shows that the amount was more than double the Sh67.26 billion borrowed during the same month last year, representing a 105.5 per cent increase.
The borrowing comes at a time when the government is facing large spending demands alongside sizeable debt repayments. Public debt service reached Ksh 113.75 billion in July, adding pressure to government finances as the 2026/27 financial year got underway.
Treasury has set a net domestic borrowing target of Ksh 918.1 billion for the financial year. This means the July borrowing accounted for about 15 per cent of the annual target in just one month. The pace, however, is not expected to remain the same every month because borrowing depends on cash requirements, debt maturities and the timing of government securities.
The government has increasingly turned to the domestic market to finance its budget. Under the 2026/27 financing plan, 78 per cent of net borrowing is expected to come from the domestic market, while 22 per cent will come from external sources.
Treasury has warned that managing this borrowing mix will be important as it tries to keep debt costs under control. Earlier government documents also noted concerns that heavy domestic borrowing could put pressure on the yield curve and limit credit available to the private sector.
For ordinary borrowers, increased government demand for money can have wider effects. Banks, pension funds, insurance companies and other investors are major buyers of government securities. When the government borrows heavily, it competes for funds that could otherwise support lending to businesses and households.
Treasury plans to rely on Treasury bills for short-term cash needs while using Treasury and infrastructure bonds for longer-term financing. It also intends to make the domestic debt market more active through a pilot market-making framework, an electronic over-the-counter trading platform and the reopening of existing bonds.
The government is also looking beyond the local market. It plans to explore financing through sovereign bonds, Samurai bonds, Sukuk, sustainability-linked bonds and diaspora bonds. Reuters reported that Kenya is also considering a debut $300 million Panda bond in China and an $815 million Eurobond issue as part of its wider financing plans.
On the revenue side, July provided some relief. Tax collections rose by 13.85 per cent year-on-year to Sh195.30 billion, giving the government more money to fund its operations.
Recurrent expenditure stood at Ksh 142.81 billion, while development spending amounted to Ksh 29.33 billion. Counties received Ksh 21.4 billion through the equitable share.
The latest borrowing figures underline the difficult balance Treasury faces: raising enough money to keep government operations running while trying to avoid putting too much pressure on the local financial system.
With the full-year domestic financing target standing at Ksh 918.1 billion, the borrowing trend in the coming months will be closely watched by investors, banks and businesses.
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