Ruto's broken promise as record Sh1 trillion local debt looms

Estimates presented on Thursday are a monument to the debt binge President swore to end. [PSU]

On a bright September morning in 2022, newly sworn-in President William Ruto stood before Parliament and made a promise that resonated with a nation weary of debt.

“The government should never borrow to finance recurrent expenditure,” he declared, referring to the day-to-day spending on salaries, operations, and maintenance.

“We must bring ourselves back to sanity.”

He vowed to stop the cycle of using loans to pay civil servants, pledging that within three years his government would produce a surplus – where tax revenue fully covers daily bills.

“It is not possible for us to borrow beyond 10 per cent,” Ruto told pension trustees a month later. “That is unacceptable.”

Today, with 14 months remaining of his first term, those words read like a eulogy for fiscal discipline, analysts say.

Treasury Cabinet Secretary John Mbadi’s 2026-27 budget, presented on Thursday, is seen as a monument to the very borrowing binge Ruto swore to end.

The government plans to spend Sh4.82 trillion in the year starting July 1. But it will collect only Sh3.63 trillion in revenue.

The resulting deficit – the gap between what it earns and what it spends – is a staggering Sh1.146 trillion (5.5 per cent of GDP).

To plug that hole, the Treasury will borrow a record Sh1.03 trillion from local commercial banks, pension funds, and insurance companies – nearly 90 per cent of all financing.

Just Sh116 billion will come from foreign lenders.

Official data from the Central Bank of Kenya (CBK) shows gross domestic debt stood at Sh7.24 trillion as of May 15, up from Sh6.33 trillion in June 2025.

Combined with external debt of Sh5.78 billion, total public debt has reached approximately Sh12.84 trillion – a stone’s throw from a record Sh13 trillion mark.

By December 2024, after just 27 months in office, Ruto’s administration had already borrowed at least Sh1.4 trillion locally – about Sh2.5 billion a day.

The cost of servicing this mountain now consumes nearly half of all ordinary revenue. In the coming fiscal year, the government will set aside Sh1.5 trillion just for debt repayments and pensions – money that cannot be spent on hospitals, teachers, or roads.

In its rapid assessment of the budget, the global audit and advisory firm KPMG issued a stark warning.

“Kenya’s debt burden remains elevated,” the firm wrote in its June 12 briefing, “and the projected budget deficit continues to require significant financing. The planned domestic borrowing programme may crowd out private sector credit and place upward pressure on financing costs.”

The report also noted that “continued reliance on domestic borrowing may place pressure on private sector liquidity and access to credit.”

In plain English, “crowding out” means that when the government vacuums up more than a trillion shillings from local banks, there is little left to lend to the small businesses that create most of Kenya’s jobs. Interest rates rise. Investment stalls.

Compounding the fiscal squeeze, talks with the International Monetary Fund (IMF) remain frozen, with the Ruto government resisting the global lender’s demands for greater transparency over potentially "hidden” debt, including pending bills estimated at Sh684 billion and securitised infrastructure loans.

The Washington-based lender has made it clear that any new financing programme depends on Kenya classifying securitised infrastructure funding as public debt and expanding reporting to cover all State entities.

The government has resisted, arguing the structures pose no fiscal risk. Officials privately acknowledge the impasse has pushed potential talks into 2027 – an election year.

The Controller of Budget, Margaret Nyakang’o, has previously issued stark warnings about a looming repayment crisis.

Appearing before Parliament in March, she cautioned that the government has fallen into a “vicious cycle” of costly borrowing, where new loans are taken merely to repay existing debt – a practice she termed “hazardous borrowing.”

She revealed that public debt had ballooned to Sh12.29 trillion (67.8 per cent of GDP) and warned that Kenya risks defaulting on debts worth Sh3.32 trillion this year unless urgent fiscal reforms are implemented.

She further noted that Sh1.59 trillion was consumed by debt service in the 2024-25 financial year – equivalent to 91 per cent of the budget allocated for public debt – which she said is “limiting cash flows and affecting the operations of business activities, especially Small and Medium Enterprises.”

The government’s revenue problem is equally dire. Between July and March, Kenya Revenue Authority collected Sh84 billion less than planned, taking in Sh2.038 trillion against a target of Sh2.122 trillion – a performance rate of 96.1 per cent.

To meet its full-year target of Sh2.97 trillion by June 30, KRA must raise Sh932 billion in the final quarter, equivalent to Sh10.24 billion every single day.

Analysts view this as near-impossible while household purchasing power remains subdued following recent price hikes.

“The economy is slowing, demand is muted, and yet the government’s revenue needs are accelerating,” said a senior banker at a tier-one lender who spoke on condition of anonymity.

“That leaves only one option: borrow more. Every shilling lent to the government is a shilling not available for a small business to expand or hire workers. With elections approaching, this problem will only get worse.”

Commercial banks now hold 36.1 per cent of government domestic debt, according to CBK data – a concentration that economists say is starving the private sector of credit.

Lending rates to businesses have climbed above 14.8 per cent, even as CBK’s policy rate remains unchanged.

On Wednesday, opposition leader Kalonzo Musyoka unveiled a counter-budget, calling the government’s spending plan “the largest in the history of the Republic of Kenya” and describing the debt burden as “generational slavery.”

“Nothing in all these years of public life has prepared me for the cruelty of this budget,” Musyoka said.

Ruto, who promised to stop digging the debt hole,  has instead handed his Treasury chief an even larger shovel.