Nearly half of government revenue spent on debt servicing, CoB reports

Kenya's fiscal health is under severe strain, with nearly half of the government's revenue being consumed by debt servicing obligations. A recent report by the Controller of Budget (CoB) for the first nine months of FY2025/26 revealed that KSh 1.35 trillion, approximately 42 per cent of total government receipts, was allocated to debt servicing. This alarming figure underscores a critical challenge to the nation's financial sustainability and its ability to fund essential public services and development projects. The situation highlights the pressing need for robust legal and policy interventions to ensure fiscal discipline, enhance transparency in public debt management, and realign expenditure with constitutional principles of public finance.

Kenya is grappling with an escalating public debt burden, a challenge starkly illuminated by the latest report from the Controller of Budget (CoB). The report indicates that in the first nine months of the 2025/26 financial year, a staggering KSh 1.35 trillion, representing about 42 per cent of the total government revenue, was expended on servicing the national debt. This significant allocation to debt repayment raises profound concerns about the country's fiscal sustainability and its capacity to meet other critical budgetary needs, including funding for devolved governments, social services, and development initiatives.

The CoB's findings are not merely statistical; they signal a deepening fiscal crisis with far-reaching legal and economic implications. The proportion of revenue dedicated to debt servicing directly impacts the government's discretionary spending, potentially leading to underfunded public services and hindering economic growth. This article will delve into the legal framework governing public debt in Kenya, analyse the implications of the current debt servicing trajectory, and explore the mechanisms for accountability and reform within the existing legal architecture.

The management of public finance in Kenya is primarily governed by Chapter Twelve of the Constitution of Kenya, 2010, and operationalised through the Public Finance Management Act, 2012 (PFM Act) and the Public Debt Management Act, 2020. Article 214 of the Constitution stipulates that public debt is a charge on the Consolidated Fund, underscoring its priority in government expenditure. Furthermore, Article 201 outlines the principles of public finance, which include openness, accountability, prudent use of public resources, and equitable sharing of the national burden.

The PFM Act, 2012, provides a comprehensive framework for the effective management of public finances by both national and county governments, establishing fiscal responsibility principles to ensure prudence and transparency. Section 107 of the PFM Act, for instance, mandates that government borrowing should primarily be used for development expenditure and not for recurrent expenses, and that a minimum of 30% of the budget should be allocated to development over the medium term. The Public Debt Management Act, 2020, further refines the legal framework for public debt, aiming to rationalise the process of debt acquisition, reporting, and approval, and to establish an autonomous Public Debt Management Authority.

Key institutions play crucial roles in this framework. The National Treasury is responsible for the overall management of public finances and the formulation of fiscal policies, including preparing annual public debt management reports. Parliament holds significant oversight authority, particularly in approving borrowing and expenditure through Money Bills. The Controller of Budget, established under Article 228 of the Constitution, is an independent office mandated to oversee the implementation of national and county government budgets by authorising withdrawals from public funds, ensuring that such withdrawals are authorised by law, and reporting to Parliament every four months on budget implementation.

The CoB's report revealing that 42 per cent of government revenue is consumed by debt servicing highlights a significant deviation from the fiscal responsibility principles enshrined in law. This high proportion directly impacts the government's ability to adhere to the PFM Act's requirement of allocating at least 30 per cent of the budget to development expenditure. Reports indicate that actual government spending on development has often fallen below this threshold, demonstrating a clear non-compliance with fiscal rules. The continuous reliance on borrowing, even for recurrent expenditure, as noted by various stakeholders, further exacerbates the problem and potentially violates the spirit and letter of the PFM Act.

The legal implications of this fiscal strain are multifaceted. Firstly, the prioritisation of debt servicing, while constitutionally mandated as a charge on the Consolidated Fund, can lead to a squeeze on funds for essential services, potentially infringing on socio-economic rights guaranteed under the Bill of Rights. Secondly, concerns about transparency and accountability in borrowing procedures persist. Critics argue that some debts may have been incurred without full parliamentary approval or adequate public participation, raising questions about their legitimacy and creating grounds for legal challenges. The Auditor-General's reports have frequently highlighted irregularities in state-funded projects, suggesting a lack of accountability in the utilisation of borrowed funds.

Furthermore, the Controller of Budget has consistently raised alarms regarding the country's debt trajectory, warning of a 'vicious cycle of debt accumulation' where new loans are taken to service existing ones. The CoB has also advocated for legislative reforms, such as formally recognising pending bills older than one year as public debt, to compel counties to prioritise repayment and enhance prudent financial management. This recommendation underscores a potential gap in the current legal definition of public debt, which primarily focuses on loans and securities, thereby allowing other financial obligations to accumulate unchecked.

The proposed Public Debt Management Authority Bill, 2020, aimed to establish an independent body to manage public debt. While intended to enhance transparency and accountability, debates around its effectiveness and whether it would merely create another 'cost centre' have been noted. The ongoing discussions highlight the complexity of reforming debt management within Kenya's legal and political landscape, where the interplay between the National Treasury, Parliament, and independent oversight bodies like the CoB and the Auditor-General is crucial but often fraught with challenges of compliance and enforcement.

The escalating proportion of government revenue dedicated to debt servicing presents a critical legal and fiscal challenge for Kenya. The CoB's report serves as a stark reminder of the urgent need for strict adherence to the constitutional principles of public finance and the provisions of the PFM Act, 2012, and the Public Debt Management Act, 2020. Failure to address this imbalance risks undermining the government's capacity to deliver on its constitutional mandate, particularly in funding essential services and promoting equitable development.

For legal practitioners, this scenario presents several implications. There is a growing need for expertise in public finance law, particularly in advising on debt restructuring, fiscal compliance, and accountability mechanisms. Lawyers may be called upon to scrutinise the legality of public borrowing, challenge non-compliance with fiscal rules, and advocate for greater transparency in debt contracting and utilisation. Moving forward, stakeholders should closely monitor legislative reforms aimed at strengthening public debt management, the enforcement of fiscal responsibility principles, and the outcomes of accountability measures initiated by oversight bodies. The long-term fiscal health of Kenya hinges on a concerted effort to entrench prudence, transparency, and accountability in all aspects of public finance.