Kenya Faces Rising Debt Costs, World Bank Warns

Kenya is facing higher costs to repay its debts, as borrowing gets more expensive for developing countries around the world. That warning comes from the World Bank's latest debt report, as reported by The Star Kenya on November 3, 2026.

It is a big report, but easy to understand if we break it.

What the report said

The World Bank released its International Debt Report 2026. Key numbers:

• External debt for all developing countries hit a new high of $9.4 trillion (about Sh1,217 trillion) in 2025.
• That debt grew 5.5% in one year - fastest since 2021, and almost four times faster than 2022-2024 average.
• For the poorest countries that can borrow from World Bank's IDA window, debt rose even faster - 8.1% to $1.3 trillion.

And it is not just the amount, it's the price. World Bank chief statistician Haishan Fu said improved access to international finance has come at a steep price.

• Poor countries are now paying 8.2% interest on new private loans in 2025 - highest since 1989.
• On new bonds, they pay 9.4% on average.

For Kenya specifically, World Bank's separate Kenya Economic Update released Nov 4, 2026 said:

• Kenya's public debt reached 69.9% of GDP by end of June 2026. Total stock crossed Sh13.01 trillion - Sh7.33 trillion domestic, Sh5.68 trillion external.
• Debt to World Bank alone crossed Sh2.045 trillion for first time - World Bank is now 66.9% of Kenya's multilateral debt.
• Interest payments alone are now 5.8% of GDP, about one-third of government revenue. Ten years ago, it was only 14.7% of revenue going to interest. Now Treasury projects 42% of ordinary revenue will go to interest in 2026-27.
• Total debt-related costs will rise from Sh1.797 trillion in 2026-27 to Sh1.918 trillion in 2027-28 - that's Sh120.5 billion extra in one year.
• World Bank also counts Sh588 billion more than government does, because of securitised revenues (Sh383bn from fuel levies) and pending bills (Sh175bn verified but unpaid). With that, World Bank says Kenya's debt ratio was 71.3% in 2025, not 67.3%.
• Country remains at high risk of debt distress, though still sustainable if reforms continue.

In short, report says: world borrowed more, but paid much more to borrow.

Why debt costs matter at home

Imagine you earn Sh50,000 per month, but you used to pay Sh7,000 for loan. Now you pay Sh21,000 for same loan. What remains for food, school fees, rent?

That is what is happening to Kenya.

When government pays Sh1.9 trillion just to service debt out of a Sh4.82 trillion budget, only small money remains for roads, medicines, teachers.

World Bank gave 4 reasons why this hurts:

1. Money that should go to health, education, roads goes to interest.
2. Government must borrow again just to pay old loans.
3. When government borrows heavily locally, banks prefer to lend to government than to small business - this is called crowding out. World Bank calls it sovereign-bank nexus - banks hold too much government debt, so if you go for business loan, interest is higher.
4. If not controlled, it can trigger default and severe economic disruption.

Simple example: If government offers Treasury bills at 16% return, why would Equity or KCB lend to a shopkeeper at 14% risk? They lend to government. So shopkeeper pays 20%. So your loan becomes more expensive because government debt is high.

Second example: Treasury plans to finance Sh1.35 trillion deficit in 2027-28 through Sh924.9 billion domestic borrowing and Sh393.9 billion external. More domestic borrowing means more competition for local money - interest stays high for everyone.

What readers should watch next

Three things to watch as ordinary Kenyan:

1. Budget Policy Statement: Draft 2027 Budget shows Treasury wants to keep debt anchor at 55% of GDP, but current present value is 65.6%. Will they cut spending or raise taxes to meet it? If they raise taxes again, households feel it.

2. Eurobond and World Bank borrowing: Kenya raised $2.25 billion in February 2026 dual-tranche Eurobond to refinance old notes maturing 2028 and 2032. Next refinancing rounds will be expensive because interest is 9.4% on bonds. Watch if government goes more to World Bank (cheaper at ∼2-3%) or back to Eurobond market (expensive).

3. Corruption premium: World Bank on Nov 4 said corruption and collusion widen Kenya's fiscal deficit by 2% of GDP per year. That is about Sh300 billion lost. And it raises borrowing cost - investors add governance premium. So anti-corruption steps will directly affect how cheap Kenya can borrow.

If debt costs stay at 42% of revenue, expect less money for counties, delayed payments to suppliers (pending bills), and higher bank loan rates for mwananchi.

It is not a debt crisis yet, World Bank says sustainable, but space is getting tighter each year.