By Erestinah Jane | July 8, 2026
The National Treasury has attributed a significant reduction in Kenya’s external debt stock to the continued strengthening of the Kenya Shilling, saying favourable exchange rate movements have eased the country’s debt burden and provided important fiscal relief.
In its latest Quarterly Economic and Budgetary Review, the Treasury reported that the appreciation of the local currency against major international currencies reduced the value of Kenya’s foreign-denominated loans when converted into shillings.
Explaining the decline in the country’s external debt, the Treasury stated:
“The decrease in the public and publicly guaranteed external debt was mainly attributed to the appreciation of the Kenya Shilling against major world currencies, which reduced the stock of debt in local currency terms.”
According to the report, Kenya’s stock of external public debt declined from KSh5.44 trillion in the previous quarter to KSh5.05 trillion, representing a reduction of approximately KSh390 billion. The Treasury said the decrease was largely driven by exchange rate gains rather than a significant reduction in the country’s outstanding foreign loan obligations.
The report further indicates that Kenya’s total public debt stock, comprising both domestic and external borrowing, fell from KSh10.54 trillion to KSh10.15 trillion during the review period, reflecting the positive impact of the stronger local currency on the government’s overall debt portfolio.
While external debt declined, domestic borrowing registered a slight increase. Treasury data shows domestic debt rose marginally from KSh5.09 trillion to KSh5.10 trillion, as the government continued issuing Treasury bills and Treasury bonds to finance budgetary requirements and bridge the fiscal deficit.
The stronger shilling has also reduced the amount of local currency required to service foreign debt obligations, easing pressure on public finances. This means the government spends fewer shillings when repaying loans owed to international lenders such as the World Bank, the International Monetary Fund (IMF) and holders of Kenya’s Eurobonds.
Beyond debt management, the Treasury noted that the appreciation of the shilling has helped lower the cost of imported goods by reducing the local currency value of purchases made in foreign currencies. The trend has contributed to lower import costs for essential commodities, including petroleum products, industrial machinery and electricity infrastructure equipment.
Economists say the exchange rate gains have also supported efforts to contain inflation by moderating the cost of imported goods and easing pressure on consumer prices. However, they caution that currency movements remain influenced by global economic conditions, international trade dynamics and domestic macroeconomic policies.
The Treasury’s latest report comes as the government continues implementing fiscal consolidation measures aimed at reducing borrowing, increasing domestic revenue collection and improving debt sustainability. Officials have maintained that prudent fiscal management, coupled with a stable exchange rate, will strengthen Kenya’s economic resilience and create greater room for investment in development priorities.
Despite the decline in external debt valuation, Kenya’s overall public debt remains above KSh10 trillion, underscoring the government’s continued focus on balancing debt management with financing critical infrastructure, social services and economic growth initiatives.
The Treasury has reiterated its commitment to maintaining sound macroeconomic policies to safeguard exchange rate stability, enhance investor confidence and ensure the country’s public debt remains on a sustainable path.
