'Fuliza' republic: Ruto's government spends 80pc of tax money on debt

The government is spending nearly 80 per cent of its tax revenue on servicing public debt, leaving President William Ruto’s administration with a razor-thin fiscal buffer for development, according to official National Treasury data published in the Kenya Gazette.

This, together with an admission by the Controller of Budget Margaret Nyakang’o that Sh3.32 trillion of debt is due in the next year and she is unsure where money to pay that debt will come from, points to a national debt crisis.

Nyakang’o has said that although Sh1.41 trillion (26 per cent) is long-term (10 plus years), the skew towards short-term maturities exposes the government to refinancing and rollover risks.

“At least Sh3.32 trillion falls due within the next one year and this indicates repayment pressures that have to be addressed because we do not know where this money will come from. There is a need to enhance transparency and accountability in public debt management by establishing a comprehensive, regularly updated public debt register, coupled with greater disclosure of the utilisation of borrowed funds,” Nyakang’o said.

She made the remarks when she appeared before the National Assembly Committee on Public Debt and Privatisation, chaired by Balambala MP Abdi Shurie, to discuss the Consolidated Fund Service (CFS) expenditure (Supplementary Estimates I) for the financial year 2025/26.

She was concerned that the debt obligations would significantly constrain fiscal space and subsequently limit the government’s ability to finance development and social programmes.

“Governance around borrowing decisions must be strengthened to ensure there are checks and balances in the determination of borrowing that has the best interest of the country. This would involve a multilayered evidence-based analysis before major decisions are made,” she explained.

The dire fiscal position comes with 18 months to go before the next General Election, as the government faces stalled talks with the International Monetary Fund (IMF) over a new funding programme and mounting economic fallout from the Middle East conflict.

The Statement of Actual Revenues and Net Exchequer Issues as of February 27, 2026, shows the government collected Sh1.516 trillion in tax revenue so far in the 2025/2026 fiscal year, but public debt servicing consumed Sh1.190 trillion, a staggering 78.5 per cent of tax collections. 

The Exchequer balance stood at just Sh10.9 billion, underscoring an exceptionally tight fiscal space.

“When public debt consumes nearly four-fifths of all collected tax revenues, the government is essentially borrowing just to keep the lights on,” said a financial analyst who requested anonymity.

Chief economist Ken Gichinga of Mentoria Economics was more blunt: “Debt distress is likely to shake the foundations of the economy as less money will be available for public services, coupled with a weak aggregate demand for goods and services. The government will likely try to push out those heavy maturities. The Central Bank of Kenya launched a voluntary bond switch program (the fourth/fifth on record) targeting KES 15B–20B to manage 2026 maturity pressures.”

Out of an annual domestic borrowing target of Sh1.098 trillion, the Treasury had by the time already absorbed Sh870.1 billion, achieving nearly 80 per cent realisation with months remaining in the fiscal year. 

External loans and grants have severely underperformed, bringing in only Sh253.6 billion against an annual target of Sh569.8 billion.

The grim fiscal picture coincides with protracted negotiations with the IMF over a new lending programme. 

A staff mission to Kenya concluded in early March without an agreement, with discussions now pushed to the IMF-World Bank Spring Meetings in April.

Treasury Cabinet Secretary John Mbadi said earlier that the government did not expect the visit to yield an agreement on a new programme. 

The IMF stated that discussions highlighted the need to “strengthen fiscal discipline, enhance fiscal credibility and build resilience to external shocks.” 

The previous $3.6 billion IMF programme expired in April 2025 without completion of its ninth review, after Nairobi failed to meet 11 of 16 performance conditions, costing the country Sh109.7 billion in untapped funding.

Analysts say the negotiations have arrived at a critical political moment for Ruto, whose “Bottom-Up” economic model has yet to deliver widespread job creation or relief from high living costs. With the election now less than two years away, public patience is wearing thin.

Kiharu MP and former Budget chair in Parliament, Ndindi Nyoro, said, “Our country is in debt distress. We are currently borrowing a net of Sh1.25 trillion every year, excluding refinancing. We have been taking on expensive loans to repay cheaper ones, thereby acting even more imprudently. Case in point, the most recent Eurobonds.

“To make matters worse, we have increasingly been borrowing off the books through securitisations and asset- and revenue-backed bonds. That is, in fact, the main reason reputable institutions such as the IMF are reluctant to extend cheaper credit to our country.

“If this trend continues unabated, it will compound the problem and make it increasingly difficult to service our obligations. It is reckless to push the country into a situation similar to that of Ghana, which was forced to impose haircuts on creditors.”

Further complicating the government’s position, the Middle East conflict has triggered severe disruptions across key sectors of the economy. Kenya relies entirely on imports for its fuel needs, consuming about 100,000 barrels daily. 

The Strait of Hormuz, through which about one-fifth of global oil passes, has effectively become a war zone, threatening supplies.

About 20 per cent of Kenya’s 3,100 fuel retailers are already facing shortages, according to the Petroleum Outlets Association of Kenya, which warns of a “total crisis” if tensions continue.

Gichinga says citizens will be gravely affected once the government moves to mop up money to pay the debts: “For the mwananchi, the effects will be felt through the crowding out of the private sector, which could lead to reduced employment opportunities and a volatile political environment.”

The agricultural sector, the backbone of the economy, has also been hit hard. Between 6,000 and 8,000 tonnes of tea worth around $24 million are stuck at the Port of Mombasa, unable to reach buyers in the Middle East and beyond. 

Tea sales have fallen by nearly 20 per cent in recent weeks, resulting in lost revenue of $8 million per week.

Flower exporters have lost Sh622.6 million ($4.8 million) in just three weeks due to air cargo disruptions, with freight costs nearly doubling. The fertiliser supply chain has also been disrupted, threatening planting schedules for maize farmers.

Gichinga says citizens will be gravely affected once the government moves to mop up money to pay the debts: “For the mwananchi, the effects will be felt through the crowding out of the private sector, which could lead to reduced employment opportunities and a volatile political environment.”

The recurrent Exchequer issues reveal stark spending priorities: the Teachers Service Commission consumed Sh257 billion, the Ministry of Defence Sh120 billion, and the National Police Service Sh83 billion. By contrast, the State Department for Crop Development received just Sh4.3 billion.

With the government’s fiscal headroom all but exhausted, IMF talks stalled, and external shocks mounting, Ruto’s administration faces an increasingly precarious path to delivering on its economic pledges before voters head to the polls, say analysts.