Kenya’s return to the international debt markets in 2025 was presented as a calculated and strategic move—one aimed at managing existing obligations, easing repayment pressures, and reinforcing confidence among global investors. By issuing a $1.5 billion (Sh188.35 billion) Eurobond at an interest rate of 9.5 per cent, the government sought to demonstrate control over its debt trajectory while actively restructuring its external liabilities.
However, a report tabled in Parliament has since introduced a very different narrative. Findings from the Auditor General raise serious questions about how a significant portion of the proceeds—approximately Sh110 billion—was utilised. What was intended as a demonstration of disciplined debt management has now become a focal point in the ongoing debate around transparency, accountability, and the sustainability of Kenya’s borrowing strategy.
At a time when the country’s total public debt has surpassed Sh12 trillion, the implications extend far beyond a single transaction. They touch on the credibility of fiscal policy, investor confidence, and the long-term stability of the economy.
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What the Eurobond Was Meant to Achieve
The 2025 Eurobond was not issued in isolation. It was part of a broader strategy known as liability management, which governments use to restructure existing debt in a more manageable way.
In Kenya’s case, the primary objective was to finance the buyback of a $900 million (Sh117 billion) Eurobond that was approaching maturity. By repurchasing or refinancing this debt early, the government aimed to reduce the risk of a sudden repayment burden, smooth out cash flow pressures, and signal proactive financial management to international markets.
Such strategies are not uncommon. Many emerging economies use Eurobonds to access large pools of foreign capital, particularly when domestic financing options are limited or expensive. When executed effectively, liability management can reduce refinancing risks and improve a country’s debt profile.
But the effectiveness of such a strategy depends entirely on one factor: discipline in execution.
What the Audit Revealed
According to the Auditor General’s report, the execution of this plan did not fully align with its stated objectives.
Out of the total proceeds, only Sh78.3 billion can be clearly linked to the intended buyback operations. This represents a portion of the funds that fulfilled their original purpose. However, the remaining funds tell a more complicated story.
A further Sh30 billion was redirected to address shortfalls in domestic borrowing, particularly within Treasury bond financing. While this may reflect short-term fiscal pressures, it represents a departure from the original liability management plan.
More concerning is the remaining Sh110 billion, whose utilisation could not be conclusively verified. The report states:
“In the circumstances, the regularity and effectiveness in the utilisation of the Sh110 billion proceeds of the Eurobond could not be confirmed.”
This does not necessarily indicate outright misuse, but it highlights a lack of traceability, incomplete documentation, and potential weaknesses in financial oversight systems.
Understanding Eurobonds and Why They Matter
To fully appreciate the implications of these findings, it is important to understand the nature of Eurobonds and their role in government financing.
A Eurobond is essentially a loan taken from international investors, typically issued in a foreign currency such as the U.S. dollar. For countries like Kenya, Eurobonds provide access to global capital markets, allowing governments to raise large amounts of funding relatively quickly.
However, this access comes with trade-offs.
Because the debt is denominated in a foreign currency, repayment depends not only on fiscal discipline but also on exchange rate stability. If the local currency weakens, the cost of repayment increases. Additionally, interest rates on Eurobonds—such as the 9.5 per cent rate attached to Kenya’s 2025 issuance—can be significantly higher than concessional loans from multilateral institutions.
This makes it even more critical that such funds are used efficiently and transparently.
A Recurring Pattern: Historical Context of Eurobond Concerns
The concerns raised in this audit are not entirely new. Kenya’s past Eurobond issuances have also been subject to scrutiny, with questions lingering over the use of more than Sh300 billion borrowed in previous years.
Despite public interest and calls for accountability, clear answers have often been difficult to obtain. Efforts to trace funds have faced limitations, and in some cases, investigations have been constrained.
This repetition suggests that the issue may not be isolated to a single administration or transaction. Instead, it points to deeper structural challenges within the country’s public financial management system—particularly in areas such as oversight, reporting, and institutional coordination.
Kenya’s Debt Landscape: The Bigger Picture
The Eurobond issue must also be viewed within the broader context of Kenya’s rising debt levels.
The country’s gross total public debt and guarantees have now exceeded Sh12 trillion, reflecting years of borrowing to finance infrastructure, development projects, and budget deficits. While such borrowing has supported economic growth, it has also increased the government’s financial obligations.
As debt levels rise, so does the importance of:
- Efficient allocation of borrowed funds
- Clear accountability mechanisms
- Sustainable repayment strategies
When any of these elements are compromised, the risks multiply.
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Why This Matters
The implications of the audit findings extend well beyond the Eurobond itself.
For international investors, transparency is a cornerstone of trust. When funds cannot be clearly accounted for, it raises concerns about governance and risk management. This can lead to higher borrowing costs in the future, as investors demand greater compensation for perceived risk.
For the Kenyan economy, the stakes are equally high. Effective debt management is essential for maintaining fiscal stability, supporting economic growth, and ensuring that public resources are used in a way that delivers long-term value.
At a domestic level, public trust is also at play. Citizens expect that borrowed funds—especially at significant cost—are used responsibly and for their intended purposes. When questions arise about utilisation, confidence in public institutions can be eroded.
Risks and Challenges
The situation highlights several interconnected risks.
One of the most immediate is credibility risk. Sovereign borrowers rely heavily on reputation when accessing international markets. If confidence weakens, future borrowing may become more expensive or more difficult to secure.
There is also a fiscal risk. The diversion of funds to cover domestic borrowing shortfalls suggests underlying budgetary pressures. This raises questions about revenue generation, expenditure management, and the overall health of public finances.
Another important factor is refinancing risk. If investor confidence declines, rolling over existing debt could become more challenging, potentially leading to higher repayment pressures in the future.
Currency exposure adds another layer of complexity. Because Eurobonds are denominated in foreign currencies, any depreciation of the Kenyan shilling increases the cost of repayment, placing additional strain on government finances.
Finally, there is a broader governance challenge. Repeated concerns about fund utilisation point to systemic issues in oversight and accountability. Addressing these issues will require more than isolated interventions—it will require structural reform.
A Critical Perspective: Misuse or Structural Pressure?
It is important to approach the issue with nuance.
The diversion of funds to support domestic borrowing may not necessarily reflect deliberate misuse. It could also indicate short-term fiscal pressures that required immediate intervention. Governments often face complex financial realities that necessitate flexibility.
However, flexibility without transparency creates its own risks.
The deeper issue may not be whether funds were misused, but whether the systems in place are robust enough to ensure that every shilling borrowed can be clearly tracked, justified, and accounted for.
Looking Ahead: What Needs to Change
The path forward will depend largely on how these concerns are addressed.
Strengthening transparency will be critical. This includes improving reporting systems, enhancing audit processes, and ensuring that all financial flows are clearly documented.
Fiscal discipline must also be reinforced. Reducing reliance on debt, improving revenue collection, and aligning expenditures with strategic priorities will be essential for long-term sustainability.
Equally important is rebuilding investor confidence. This will require clear communication, consistent policy implementation, and demonstrable improvements in governance.
Conclusion
Kenya’s $1.5 billion Eurobond was intended to showcase strategic financial management and proactive debt restructuring. Instead, it has highlighted the importance of transparency, accountability, and disciplined execution in sovereign borrowing.
The questions raised by the Auditor General do not just concern past actions—they shape future possibilities. In global financial markets, trust is not optional. It determines access, cost, and credibility.
For Kenya, the challenge now is clear: to address these concerns decisively and build a system where every borrowed shilling is not only accounted for, but also used effectively to support sustainable economic growth.
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