Kenya’s National Treasury is preparing another sovereign bond issuance to ease pressure on domestic borrowing, as the government grapples with weak revenue performance and rising spending demands.

 

The proposed Eurobond comes amid falling collections in the first half of the 2025/26 fiscal year and mounting expenditure pressures, including emergency spending on drought and disaster response, security, education and health.

The EastAfrican has learnt that Treasury mandarins have been burning the midnight oil working on the first supplementary budget of the 2025/26 fiscal year, expected to be tabled before Parliament within the next three months to help fill up the budget deficit.

National Treasury Principal Secretary Chris Kiptoo told The EastAfrican that the proposed Eurobond is intended to reduce pressure on the domestic market and create space for private sector borrowing.

He said improved conditions in international capital markets had opened a window for countries with sound economic fundamentals to raise funds at competitive rates.“The proposed second Eurobond issuance is motivated by improved conditions in the Eurobond market that make it possible for countries with good economic and financial performance to raise funds at competitive pricing,” Dr Kiptoo said.“The issuance is also intended to reduce the uptake of domestic borrowing and create a conducive environment for the private sector to borrow.”Treasury declined to disclose the size or timing of the bond. However, sources said the issuance could range between $1.5 billion and $2 billion.

Budget pressuresTreasury was non-committal on how the proceeds would be used, saying the government faced spending pressures across security, drought and disaster response, education and health, but that priority would be given to budget offsets.

Budget offsets involve financing new spending through cuts elsewhere or higher revenues to avoid widening the deficit.

Dr Kiptoo said any additional spending would be contained to keep the primary balance positive.“There is a supplementary budget expected in the first quarter of 2026. Efforts are being made to ensure the budget deficit does not deteriorate to the point where the primary balance turns negative,” he said.

He added that the Eurobond was not meant to cover revenue shortfalls.“IMF [International Monetary Fund] funding was not factored into the financing of the 2025/26 budget following the lapse of the IMF programme in April 2025,” Dr Kiptoo said.“KRA has therefore been directed to put in place measures to meet revenue targets and recoup the shortfall recorded in the first half of the financial year.”External funding gapsTreasury’s planned return to international capital markets comes barely three months after it raised $1.5 billion in October 2025 to buy back $1 billion of its 2028 Eurobond, easing near-term repayment pressure.

It also comes amid uncertainty over other external funding sources. The government has suspended plans for a Chinese Panda bond, citing the need for “patience” in that market, while the World Bank has attached new conditions to release a frozen $750 million loan.

In November last year, Treasury officials travelled to Japan to seek support for a planned $170 million Samurai bond, but the pursuit has since gone quiet.

Dr Kiptoo said discussions with the IMF were ongoing but cautioned against counting the funding prematurely.“It is only prudent to factor such funding upon reaching an agreement on a successor programme,” he said.

He added that talks with the World Bank on the seventh Development Policy Operation (DPO VII) were progressing, with funds expected in the second half of the 2025/2026 fiscal year.

Kenya’s $3.6 billion IMF programme expired in April 2025 after Nairobi failed the final review of the Extended Credit Facility and Extended Fund Facility. As a result, the country missed out on the remaining $490 million.

KRA missed revenue targets by Ksh90 billion ($697.67 million) in the first three months of the 2025/2026 fiscal year. By the end of October 2025, the shortfall had widened to Ksh107.5 billion ($833.33 million).

Treasury Cabinet Secretary John Mbadi last month cited revenue underperformance as a key trigger for the supplementary budget.

KRA last exceeded its revenue target in the 2021/22 fiscal year, when it collected Ksh2.03 trillion ($15.73 billion) against a target of Ksh1.88 trillion ($14.57 billion).

Cash positionThe government entered 2026 with just Ksh25 billion ($193.79 million) in the consolidated fund, according to Treasury’s statement of actual revenues and net exchequer issues as of December 31, 2025.

The balance represents the remainder of the $1.5 billion Eurobond issued in October 2025.

Treasury received $1.46 billion (Ksh189.4 billion) from that issuance. Of this, Ksh86.4 billion ($669.76 million) was used for the Eurobond buyback, while Ksh103.1 billion ($799.22 million) was allocated to budget support.“We have progressively utilised the amount, and the balance remaining as at December 31 was Ksh25 billion,” said Benard Ndung’u, director-general for Accounting Services and Quality Assurance at the National Treasury.

Debt trajectoryBy the end of June 2025, Kenya’s public and publicly guaranteed debt had risen 11.7 percent to Ksh11.81 trillion ($91.55 billion), from Ksh10.58 trillion ($82.01 billion) a year earlier.

The increase was driven mainly by domestic borrowing, which grew 17 percent to Ksh6.32 trillion ($48.99 billion). External debt rose 6.1 percent to Ksh5.48 trillion ($42.48 billion).

Domestic debt now accounts for 53.5 percent of total public debt, up from 51 percent a year earlier, underscoring Treasury’s growing reliance on the local market — a trend the proposed Eurobond is intended to reverse.

© Copyright 2026 Nation Media Group. All Rights Reserved. Provided by SyndiGate Media Inc. (Syndigate.info).