Kenya National Treasury is facing heightened scrutiny after an audit revealed it inflated the 2024/25 fiscal deficit to KSh1.26 trillion without approval from lawmakers, raising concerns about adherence to debt management rules and fiscal discipline.
The findings, detailed in a report by Auditor General Nancy Gathungu, show that the deficit exceeded the KSh768.6 billion approved by Parliament by KSh492.12 billion. The discrepancy has triggered questions over compliance with the Medium-Term Debt Strategy and the government broader fiscal framework.
According to the audit, the Treasury actions contravened recommendations set by the Public Debt and Privatisation Committee, which oversees borrowing strategies and fiscal planning.
The Medium-Term Debt Strategy, adopted by the National Assembly and outlined in the Budget Policy Statement, set clear thresholds for deficit financing. It recommended a borrowing mix of 45% external and 55% domestic financing to fund the approved deficit.
However, by June 30, 2025, actual borrowing deviated sharply from this framework. External borrowing stood at KSh374.01 billion, while domestic borrowing surged to KSh886.61 billion, shifting the ratio to 30:70.
“In the circumstances, the National Treasury was in breach of the Medium-Term Debt Strategy recommendations,” the audit report states, noting that no parliamentary approval was obtained for the deviation.
rising debt levels intensify concerns
The audit findings come amid a steady increase in Kenya public debt, which reached KSh11.74 trillion as of June 30, 2025, up from KSh10.5 trillion on July 1, 2024.
External debt rose from KSh5.1 trillion to KSh5.45 trillion, while domestic debt climbed more sharply from KSh5.4 trillion to KSh6.3 trillion, reflecting the Treasury heavier reliance on local borrowing.
Critics warn that the shift toward domestic borrowing could crowd out private sector lending and increase the cost of credit, potentially slowing economic growth.
Abdi Shurie, who chairs the parliamentary committee overseeing public debt, emphasized that any deviation from approved borrowing strategies must receive legislative approval.
The committee has called on the Treasury to strictly adhere to the Medium-Term Debt Strategy to maintain the credibility of fiscal policy documents and ensure transparency in debt management.
The Medium-Term Debt Strategy is a key policy tool designed to guide borrowing decisions while minimizing costs and risks. Developed with input from the World Bank and the International Monetary Fund, it links debt management to broader macroeconomic objectives.
Lawmakers have warned that failure to follow the strategy undermines fiscal consolidation efforts. The committee recommended that deficit levels be reduced to 4.4% of GDP in 2023/24, 3.9% in 2024/25, and 3.6% in 2025/26.
However, the reported deficit of 6.3% of GDP for 2024/25 significantly exceeds these targets, raising alarms about Kenya debt sustainability trajectory.
The audit underscores growing concerns about fiscal governance as the government grapples with rising expenditure pressures and limited revenue growth.
