By Thuita Gatero, Managing Editor, Africa Digest News. He specializes in conversations around Finance, energy and renewable energy.
Kenya’s public debt has climbed to an estimated KSh 11.8–12.5 trillion, and Kiharu MP Ndindi Nyoro is sounding the alarm over what he calls a worrying shift in government borrowing practices, the increasing use of securitisations and special-purpose funds to borrow “off the book.”
His warning comes amid rising global scrutiny of hidden debts, following reports that Senegal’s previous government secretly borrowed $13 billion “off the record.” Such shadow borrowing not only distorts a country’s true debt picture but can also explode into full-blown fiscal crises when liabilities come due.
Nyoro argues that Kenya risks the same fate if it continues using future levies as collateral for undisclosed loans. Hidden liabilities reduce fiscal flexibility and can quickly become contingent debts that taxpayers, not the institutions will ultimately shoulder.
How Kenya Is Borrowing Off the Books
While official reports list public debt at around KSh 11.8 trillion, several off-book or securitised borrowing mechanisms have emerged:
- Fuel Levy Securitisation: Around KSh 175 billion has reportedly been raised by pledging future fuel levy collections for the next seven years. Another KSh 100 billion-plus transaction is said to be in progress.
- Talanta Fund Bond: The government borrowed KSh 44.5 billion, secured against future Sports Fund revenues. The interest alone on this loan could total KSh 100 billion over 15 years.
- Housing Levy Borrowing: Plans are underway to raise hundreds of billions of shillings against the Housing Levy effectively borrowing tomorrow’s contributions today.
Analysts warn this growing trend adds pressure to an already strained fiscal position. According to Moody’s, Kenya now spends roughly one-third of its revenues on interest payments, leaving limited room for development spending.
The Cost of Rising Interest
At current debt levels, even modest rate increases can have devastating effects.
A simple stress test illustrates the danger:
| Debt (KSh Trillions) | At 5% Interest | At 6% Interest | At 8% Interest |
|---|---|---|---|
| 11.81 | 590.5B | 708.6B | 944.8B |
| 11.97 | 598.5B | 718.2B | 957.6B |
| 12.50 | 625.0B | 750.0B | 1.00T |
A one-percentage-point increase in the average interest rate raises Kenya’s annual debt service costs by KSh 118–125 billion, more than many ministries’ entire annual budgets.
Why Off-Book Borrowing Is Dangerous
- It hides true leverage. Programs and SPVs (Special Purpose Vehicles) may appear separate, but if they default, the government remains the guarantor. Eventually, the risk returns to the sovereign balance sheet.
- It mortgages the future. Pledging tomorrow’s levies (fuel, housing, sports) to service today’s loans removes future revenue for essential spending or emergencies.
- It amplifies rollover risk. If global interest rates rise or revenues underperform, these securitisations could collapse, forcing government bailouts or defaults.
What Kenya Should Do
- Enforce Full Transparency: All government guarantees, securitisations, and fund-based loans should be recorded in the national debt bulletin. Any pledge of future revenue must appear as a liability “a promise counted.”
- Publish Debt Stress Tests: The Treasury should model 3–5 year debt service projections under various GDP and interest rate scenarios. If interest costs approach a third of revenues, new borrowing should pause or be restructured.
- Suspend New Off-Book Deals: Any future securitisation should require parliamentary approval and independent debt office validation.
- Borrow Only for Economic Returns: Debt should finance projects that generate measurable GDP growth, not recurrent expenses.
- Preserve Buffers: Maintain contingency reserves and protect social spending from being pledged as collateral.
How Investors and Citizens Should Read the Signs
For investors, any fund backed by future government levies is de facto sovereign debt. Price it as such. For citizens and legislators, demand full disclosure, ask for the entire ledger, both explicit and implicit.
Capital markets reward predictability. Hidden debts, on the other hand, invite higher interest rates and erode trust.
As Ndindi Nyoro warns, Kenya must learn from Senegal’s example and stop borrowing in the shadows. Governments, like investors, should love simple balance sheets. Call a promise a promise. Count it. Stress-test it.
Borrowing against tomorrow’s taxes may offer short-term relief, but in the long run, it trades fiscal prudence for political convenience and that’s a debt no country can afford.