Kenya's Sh455b borrowing spree and cost of graft

Treasury CS John Mbadi during an Electronic Government Procurement (e-GP) stakeholders’ meeting. [Wilberforce Okwiri, Standard]

Kenya’s insatiable appetite for debt continued to grow last year as it emerged as the largest sovereign borrower in the region, according to a new World Bank report.

This is even as separate findings by the multilateral lender showed that corruption has been fueling the country’s high budget deficits and pushing up borrowing costs by making lenders view the country as high risk.

The International Debt Report (IDR) by the World Bank shows that Kenya was the single largest sovereign borrower tapping international capital markets for Eurobonds last year. The country raised $3.5 billion (Sh455 billion) in multiple tranches, with the proceeds used to execute a liability management operation to buy back existing eurobonds maturing in 2027 and 2028 ahead of schedule to mitigate default risk.

In a different report, also published last week, the World Bank noted that high levels of corruption are among the factors contributing to a high budget deficit for Kenya and have kept the country hooked on debt. Graft also sees Kenya borrowing at high interest rates, with lenders perceiving the country as a risky borrower because of corruption. 

“Kenya, the largest issuer in the region, raised $3.5 billion (Sh455 billion) in 2025. The country returned to bond markets to prepay its 2027 and 2028 maturity obligations ahead of schedule,” said the World Bank in the IDR.

Kenya used some of the money raised through the longer-dated eurobonds to buy back earlier eurobonds that were nearing maturity, which, according to the World Bank, has smoothed the maturity profile of existing liabilities. Kenya bought back the $900 million  (Sh117 billion) Eurobond maturing in 2027 and the $1 billion (Sh130 billion) Eurobond maturing in 2028. However, the refinancing strategy will trigger higher debt-servicing costs, as the new loans were taken at significantly higher interest rates than the obligations they replaced.

In March 2025, the government of Kenya issued a $1.5 billion (Sh195 billion) Eurobond at 9.5 per cent, due in 2036 and in April, it raised $500 million (Sh65 billion) priced at 8.25 per cent, due in 2032.

In October 2025, the government of Kenya raised a further $1.5 billion (Sh195 billion)  through a dual-tranche Eurobond issuance, comprising two equal $750 million (Sh97.5 billion) tranches, with one priced at 7.875 per cent due in 2033 and the other at 8.80 per cent due in 2038.

“The 2025 buyback operation extended debt maturities and eased near-term refinancing pressures but largely functioned as a refinancing manoeuvre rather than reducing the overall debt stock,” said the World Bank.

The World Bank said Kenya is among the developing countries that drove growth in the sovereign credit markets, with external borrowing by developing countries growing 5.5 per cent to a record $9.4 trillion in 2025. This was the fastest pace since 2021 and about four times the 2022 and 2024 average, according to the report.

Kenya and its peers trooping back to the debt markets last year was on account of improved access to international finance. It came after a period of lull between 2022 and 2024 that saw lenders opt to lend in developed countries where interest rates had gone up in markets such as the US and Europe as authorities hiked rates to fight post-pandemic inflation.

The World Bank, however, noted that while access to international finance for developing economies had improved last year, they still have to grapple with high interest rates. The result has been that high debt burdens in the poorest countries continue to crowd out essential investments in areas such as health.

 “The return of private lending to low- and middle-income countries is welcome, but these countries are borrowing more, paying more, and in many cases leaving less for long-term development,” said Haishan Fu, World Bank Group Chief Statistician and Director of Development Data. “Managing debt responsibly means giving everyone—including future generations—a chance to thrive.” 

Just as with Kenya, many governments issued new bonds to buy back maturing debt, smoothing repayment profiles without significantly reducing debt stocks, often at higher interest rates.

Kenya’s newly issued Eurobonds carry interest rates of between 7.875 per cent and 9.75 per cent, making them more expensive than earlier issues being bought back, which averaged around seven per cent.

The World Bank noted developing countries paid an average of 8.2 per cent on new private-creditor commitments in 2025, which is the highest rate since 1989, and 9.4 per cent on new bonds.

“In comparison, countries eligible for only non-concessional loans from the World Bank Group’s International Bank for Reconstruction and Development (IBRD) paid an average of 5.5 per cent on new bonds, an improvement from the 5.8% rate the previous year,” said IDR.

In another report – the Kenya Economic Update that was also published last week – the World Bank linked corruption to significant growth in Kenya’s budget deficit, which keeps the country’s borrowing needs high.

The report also said that corruption risks contribute to a higher cost of borrowing, with the country perceived as risky due to high graft levels.

“Governance risks increase the cost of public debt by elevating perceived creditor risk, creating a ‘governance premium’ on sovereign borrowing due to potential instability and an increased risk of default. This risk is reflected in sovereign credit ratings, which act as a primary transmission mechanism to market spreads,” said KEU, which had a special focus on corruption as a factor limiting economic growth and job creation.

The report said an improvement in Kenya’s official corruption ranking to match countries like Senegal, Ghana or Côte d’Ivoire could make international lenders view the country as safer to lend to.

It further noted this could see interest rates on Kenya's foreign debt drop by roughly 0.5 per cent and one per cent, which could translate into annual savings of between $50 million and $100 million.

“Reduced leakage of expenditure, improved revenue collection and lower interest costs due to reduced corruption would have sizable fiscal benefits. The existing debt stock—including the additional volume due to corruption—is an accumulated burden.  However, improving control of corruption could significantly reduce future borrowing needs,” said the report

“For example, reducing expenditure leakage from procured items by 10 per cent could reduce total spending in 2026/27 by around Sh120 billion (US$930 million), and assuming a higher willingness to pay taxes could yield a 10 per cent increase in personal income tax revenue of around Sh50–60 billion (US$388–465 million).”

“Combined with Sh12.8 billion from lower interest rate payments, these changes alone could save Sh192.8 billion per year, or about 18 per cent of the planned budget deficit for FY2026/27.”

The World Bank estimated that corruption and collusion cost the country two per cent of GDP. This could translate to Sh358 billion annually, with government data showing GDP stood at Sh17.6 trillion in 2025. Former President Uhuru Kenyatta said in the past that more than Sh2 billion is lost to corruption every day, or more than Sh700 billion annually.

The report by the World Bank noted that the losses translate into substantial additional borrowing needs accumulating over time.

In the report, the World Bank noted that taming corruption, which has an impact on reducing government expenditure and also reducing tax losses, could have other positive impacts, including the buy-in from Kenyans, such as increased tax compliance.

“Perceived collusive state-business relationships and corruption have contributed to low tax morale. Perceived and actual preferences for some businesses and frequent reports about the misuse of public funds limit the willingness of informal traders and citizens to shoulder an increased tax burden,” said the report.