Kenya’s debt situation saw a shift in March, with a significant increase in domestic borrowing and a decline in external debt. According to the Treasury, domestic debt rose by 34 billion shillings, bringing the total to 3.34 trillion shillings. This increase in domestic borrowing suggests that the government is turning to local sources to finance its budget deficit. In contrast, external borrowing fell by a substantial 490 billion shillings, leaving the balance at 3.31 trillion shillings. This decline in external debt signals a move away from foreign borrowing, which could be aimed at reducing the country’s reliance on international lenders. The reasons behind these changes in Kenya’s debt composition are not immediately clear. However, they may be related to factors such as the ongoing COVID-19 pandemic, which has impacted government revenues and increased spending. Additionally, the government may be seeking to diversify its funding sources and reduce its exposure to foreign exchange risks.Kenya’s Debt Portfolio and Loan RepaymentsKenya’s Debt Portfolio and Loan Repayments As of March 2024, Kenya’s outstanding debt stood at Ksh10.39 trillion, comprising Ksh5.235 trillion of domestic debt and Ksh5.163 trillion of external debt. External Debt Kenya’s external debt decreased by Ksh490 billion due to the strengthening of the Kenyan shilling. Bilateral creditors accounted for a debt reduction of Ksh116.49 billion, multilateral debt decreased by Ksh244.6 billion, commercial debt dropped by Ksh118.8 billion, and publicly guaranteed external debt reduced by Ksh10.58 billion. The government has repaid Ksh633.19 billion in external loans for the 2023/2024 financial year as of the end of March. Domestic Debt Domestic debt increased by Ksh34 billion in March due to additional borrowing. The domestic debt portfolio increased from Ksh5.2 trillion to Ksh5.23 trillion. Implications * Kenya’s external debt portfolio is expected to continue shrinking if the shilling remains strong. * The government aims to diversify its currency holdings to mitigate exchange rate risks. * The upcoming budget deficit and the withdrawal of the finance bill may hamper efforts to reduce external debt. * The deficit could lead to increased debt accumulation, posing risks to Kenya’s debt repayment capacity.Kenya’s domestic debt increased by KES 34 billion in March, while external borrowing decreased by KES 490 billion, as per data from the Treasury. The rise in domestic debt was attributed to increased borrowing from local sources to finance the budget deficit and to refinance maturing debt. On the other hand, the decline in external borrowing was due to a reduction in commercial loans and a slowdown in disbursements from multilateral lenders. Despite the decrease in external borrowing, Kenya’s total public debt as of March 2023 stood at KES 7.6 trillion, representing 63.1% of the country’s GDP. Domestic debt accounted for 40% of the total, while external debt accounted for the remaining 60%. The government has expressed concerns over the rising levels of debt and has pledged to adopt measures to reduce the debt burden.