NTA Warns of ‘Revenue–Debt Trap’ as Kenya’s Debt Hits KSh 13 Trillion

NAIROBI, Kenya, Aug 14 – The National Taxpayers Association (NTA) has issued a sharp warning over Kenya’s escalating debt crisis, cautioning that the country risks entering a destructive “revenue–debt treadmill” where virtually all newly mobilized tax revenues are immediately consumed by debt servicing rather than improving public services.

​The Association’s Chief Executive Officer Mr. Patrick Nyangweso while speaking during the opening of the Coalition Meeting on the National Debt Burden and Domestic Resource Mobilization in Nairobi which brought together policymakers, civil society organizations, fiscal experts and development partners to address Kenya’s precarious financial position and map out a pathway toward fiscal sustainability.​

The forum comes against the backdrop of fresh National Treasury data revealing that Kenya provisionally closed Financial Year 2025/26 with a public and publicly guaranteed debt stock of KSh 13.013 trillion representing a debt-to-GDP ratio of approximately 68.5%.

Mr. Nyangweso noted that in just one financial year, Kenya’s total debt expanded by nearly KSh 1.2 trillion (up from KSh 11.814 trillion) with 84% of the annual increase was driven by domestic borrowing, which rose by KSh 1.003 trillion compared to an external debt increase of KSh 196 billion.​

By May 2026, Treasury bonds stood at approximately KSh 5.944 trillion against Treasury bills at KSh 1.107 trillion, representing an 84:16 bond-to-bill ratio as the government sought to extend maturity profiles and mitigate short-term refinancing risks.

While domestic borrowing avoids direct foreign exchange exposure, NTA highlighted severe emerging risks to the local economy.

​They highlighted that when the government aggressively borrows from local markets to plug its deficit, commercial banks reallocate capital toward risk-free public securities, It compresses credit availability for the private sector.

Referencing warnings from the International Monetary Fund (IMF), Taxpayers Association stressed that heavy reliance on domestic markets deepens the link between sovereign debt and bank balance sheets, heightening broader financial-stability risks

“Domestic debt may be denominated in shillings, but its consequences are very real for taxpayers, businesses, pensioners, and the wider financial system. It deserves the exact same level of public and parliamentary scrutiny traditionally applied to Eurobonds and foreign loans.”

The immediate consequence of Kenya’s debt structure is felt in revenue allocation, In FY2024/25, Kenya spent KSh 1.722 trillion on debt servicing a staggering 71.2% of the KSh 2.42 trillion collected in ordinary revenue.​Interest payments alone consumed KSh 987.5 billion, or 40.8% of ordinary revenue.

In practical terms, out of every KSh 100 raised from Kenyan taxpayers in FY2024/25: KSh 41 went directly toward paying interest while KSh 71 went toward reported debt obligations in total.

As short-term Treasury bill redemptions are regularly rolled over and excluded from gross expenditure figures, the true underlying annual refinancing requirement is even larger.

The dynamic explains why despite growth in official tax collection figures, funding for counties, public hospitals, schools, contractors, and social safety nets continues to face chronic delays.

Kenya’s National Tax Policy (2023) and Medium-Term Revenue Strategy (2024/25–2026/27) set an ambitious target to raise the country’s revenue-to-GDP ratio from 14.3% (FY2022/23) to approximately 20% by the end of FY2026/27.​

However, NTA emphasized that tax measures alone cannot fix the underlying structural problem if collected funds are continuously absorbed primarily by interest payments, debt service, unresolved fiscal leakages, and inefficient spending.​

Additionally, NTA noted that Domestic resource mobilization must instead rest on a wider fiscal compact involving:

A fair and predictable tax system, Protection of low-income and vulnerable citizens, Rationalization of ineffective tax exemptions, Stronger action against tax evasion and illicit financial flows, Efficient and accountable public expenditure, Transparent debt management, Credible control of fiscal deficits and visible improvements in public services.

“Citizens do not experience domestic resource mobilization as an abstract tax-to-GDP ratio, they experience it through VAT on daily necessities, deductions from salaries, fuel levies, business taxes, licences, fees and the cost of public utilities.”

“Their legitimate expectation is that these contributions should translate into better health care, quality education, reliable infrastructure, social protection, economic opportunities and responsive public institutions”.

On his part Stephen Osedo, Kenya National Chamber of Commerce & Industry (KNCCI)head of policy, research and advocacy stated that country’s growing debt obligations and recurrent expenditure are leaving less money for development projects and productive sectors crital for long-term economic growth.

“When there are alot of commitments to redeem our debts, the fiscal space for essential public investments shrinks dramatically. To absorb this budgetary shock, governments frequently resort to deferring payments to contractors and putting vital infrastructure development on hold”, said Mr. Osedo.

To protect intergenerational equity and prevent young Kenyans from inheriting debt without corresponding public assets, the association outlined four core pillars for policy reform:

Full Debt Transparency: Citizens and lawmakers must be able to trace every loan from agreement to budget allocation, procurement, and physical outcome.

Expenditure Accountability: Aggressive action against public waste, corruption, and project cost overruns must accompany any demands for increased tax compliance.

Socially Responsible Consolidation: Fiscal adjustment must ring-fence essential services like healthcare, capitation for schools, and targeted social protection.

Productive Borrowing: Future loans must exclusively finance high-impact, durable assets rather than recurrent expenditure or overpriced procurement.

The forum concluded with a call for institutional cooperation across state agencies, researchers, civil society, and the private sector to restore legitimacy and public trust in Kenya’s fiscal system.

“Kenya cannot tax its way out of debt without reforming how it borrows and spends. Equally, it cannot reduce borrowing sustainably without strengthening a fair, productive, and trusted domestic revenue system. Debt sustainability, revenue mobilization, and service delivery are parts of the exact same fiscal compact.”