Kenya is at a critical crossroads, struggling under the weight of unsustainable debt and rising fiscal pressures. National Treasury Cabinet Secretary John Mbadi recently delivered a stark assessment of the nation’s economic plight, warning that imprudent borrowing practices—especially the misuse of short-term loans to finance long-term development projects—have left the country with a debt burden that is suffocating its economy. In a candid address at Migori Teachers Training College’s graduation ceremony, Mbadi laid bare the fiscal missteps of the past while charting a course toward recovery through strategic reforms and responsible debt management.

The Crisis of Fiscal Imprudence

For years, Kenya has grappled with a challenging fiscal environment. Mbadi’s remarks point to a long history of borrowing that, rather than stimulating sustainable growth, has contributed to an economic stalemate. “It is true that our economy is not doing very well. It is largely because, at one time, we took short-term loans to develop long-term projects,” Mbadi explained. He elaborated on how loans with maturities of three, five, seven, or even ten years were used to finance projects whose benefits would only materialize after 30 years. This mismatch between the financing horizon and the project life cycle has placed enormous pressure on the country’s finances.

Kenya’s current public debt stands at about Sh10 trillion—a figure that has ballooned over recent years. With nearly two-thirds of annual revenue now channeled towards servicing domestic and external debt, the government’s capacity to invest in crucial sectors such as education, healthcare, and infrastructure has been severely constrained. The fiscal squeeze is forcing the country to look inward at a time when external aid is diminishing, and global economic headwinds are intensifying.

The Short-Term vs. Long-Term Loan Dilemma

At the heart of Kenya’s economic woes is the fundamental misalignment between the duration of the loans taken and the lifespan of the projects they were meant to fund. Short-term loans, which require quick repayments with interest, were once considered a flexible financing tool. However, when used to underpin long-term projects—such as roads, bridges, and industrial parks—the repayment schedules become unsustainable. The benefits of these investments, such as improved infrastructure and enhanced productivity, typically accrue over decades, not within a few short years.

Mbadi stressed, “The loans were short-term, which we have to pay with interest, but the results of the projects will start being seen after 30 years. That is the struggle.” This temporal disconnect has led to a situation where Kenya is continually forced to refinance its debt, often at unfavorable rates, thereby compounding the overall debt burden. The approach, critics argue, reflects a short-sighted fiscal strategy that prioritized immediate needs over long-term sustainability.

Policy Reforms and the Road to Recovery

Despite the bleak picture, Treasury CS Mbadi remains cautiously optimistic about the possibility of turning Kenya’s economic fortunes around. He assured the public that his debut budget for the 2025/2026 financial year will focus on long-term sustainability and equitable development across all regions of the country. “This will be my first budget, I will be fair to the whole country,” he promised, urging Members of Parliament not to undermine his efforts to enact much-needed economic reforms.

Mbadi’s strategy hinges on several key pillars:

• Rationalizing Borrowing Practices: The government is committed to avoiding the pitfalls of short-term borrowing for long-term projects. Future loans will be matched more appropriately with the maturity profiles of the projects they finance, ensuring that repayment terms align with the period over which benefits are realized.
  
• Enhancing Fiscal Discipline: There will be a renewed emphasis on prudent fiscal planning and strict budgetary controls to reduce wasteful expenditure. This includes scrutinizing government spending and prioritizing investments that yield high long-term returns.
  
• Diversifying Revenue Sources: To ease the burden of debt servicing, the government plans to broaden its revenue base. This includes tapping into non-traditional sources of income such as digital services, tourism, and agricultural exports, while also reforming tax policies to ensure a fairer distribution of the fiscal load.
  
• Boosting Investment in Social Services: Recognizing the critical role of social infrastructure, especially education and healthcare, the government is committed to reversing underinvestment in these areas. Migori Governor Ochilo Ayacko and Nyatike MP Tom Odege, present during the announcement, highlighted the urgent need for increased funding for the education sector and improved remuneration for teachers.
  

The Human Impact: Education, Employment, and Everyday Life

The economic challenges highlighted by Mbadi are not abstract figures on a balance sheet—they have a tangible impact on the lives of everyday Kenyans. Public debt, which consumes a significant portion of government revenue, leaves fewer resources available for essential services. In rural and urban areas alike, citizens are witnessing the consequences of a constrained fiscal environment: underfunded schools, inadequate healthcare facilities, and crumbling infrastructure.

Teachers, for instance, are among the most affected groups. Migori Governor Ochilo Ayacko underscored the plight of educators, noting that many go for years without promotion or adequate compensation. “Teachers are among the most underpaid public servants, and if we do not prioritize education now, the situation could worsen under the current economic conditions,” Ayacko warned. This sentiment is echoed by parents and students, who rely on quality education as a pathway out of poverty and a foundation for future success.

Small business owners and entrepreneurs also feel the pinch. In an environment where public investment is curtailed by high debt servicing obligations, infrastructure projects that support commerce—such as roads, electricity, and internet connectivity—often suffer from underfunding. The ripple effect is a slowdown in economic activity, reduced job creation, and a stifling of innovation. For many Kenyans, the current economic policies feel like a barrier to progress, exacerbating feelings of frustration and uncertainty about the future.

The Global Context: Comparisons and Lessons Learned

Kenya is not alone in facing the challenges of high public debt and fiscal mismanagement. Many emerging economies have struggled with similar issues, where the mismatch between borrowing terms and project lifespans has led to a debt spiral. Countries in Latin America and parts of Asia have, at various times, experienced severe economic downturns as a result of unsustainable debt practices.

One notable example is the Latin American debt crisis of the 1980s, where many countries borrowed heavily in the short term to finance long-term projects, only to find themselves unable to service the debt when global interest rates rose. The consequences were severe—widespread austerity measures, hyperinflation, and a prolonged period of economic stagnation that took decades to overcome. While Kenya’s situation is different in many respects, the historical lessons are clear: prudent borrowing practices and sound fiscal management are essential for long-term economic stability.

In recent years, international financial institutions such as the International Monetary Fund (IMF) and the World Bank have increasingly emphasized the importance of aligning debt maturities with the expected returns of investment projects. These institutions have also advocated for greater transparency and accountability in public financial management. As Kenya navigates its current challenges, there is an opportunity to adopt these global best practices, ensuring that future borrowing is sustainable and that the benefits of development projects are realized over an appropriate timeframe.

Voices from the Public and the Business Community

The public response to Mbadi’s admission of fiscal woes has been mixed. Many citizens appreciate the transparency and the acknowledgement of past mistakes, hoping that it signals a genuine commitment to reform. Yet, there is also a palpable sense of anxiety among Kenyans, who fear that the high debt burden will continue to constrain the government’s ability to invest in essential services and drive economic growth.

Local business leaders have voiced their concerns about the long-term implications of the debt crisis. “When a significant portion of our national revenue is used merely to service debt, it leaves little room for investments that could create jobs and spur innovation,” said a prominent entrepreneur in Nairobi. “We need a reset—one that not only addresses the immediate fiscal challenges but also lays the groundwork for sustainable growth.”

Community groups and civil society organizations are similarly urging the government to prioritize social spending. In forums and town hall meetings across the country, citizens have called for a more balanced approach to fiscal policy—one that supports economic growth while also ensuring that vulnerable populations have access to education, healthcare, and social safety nets.

Strategic Reforms: A Vision for a Resilient Future

Looking ahead, the challenge for Kenya’s policymakers is to balance the need for fiscal consolidation with the imperative of stimulating economic growth. Treasury CS Mbadi’s upcoming budget for the 2025/2026 financial year is seen as a critical test of the government’s commitment to change. Key elements of this strategic reform agenda are expected to include:

1. Restructuring Debt: The government is exploring options to refinance existing debt on more favorable terms. This might involve extending the maturity periods of loans, negotiating lower interest rates, or converting short-term liabilities into longer-term obligations that better match the cash flow from development projects.
   
2. Improving Fiscal Transparency: Strengthening mechanisms for budgetary oversight and accountability is paramount. By ensuring that borrowed funds are used effectively and that projects deliver tangible benefits, the government can build public trust and create a more sustainable fiscal environment.
   
3. Boosting Revenue Collection: Expanding the tax base and improving tax compliance are critical to increasing domestic revenue. Reforms in tax administration, including digitalization of tax systems and broadening the tax net, can help reduce the reliance on borrowing to finance public expenditures.
   
4. Prioritizing Social Investments: As underscored by voices from the education sector, increased funding for critical social services is essential. The new budget is expected to allocate more resources to education, healthcare, and infrastructure development in underserved areas, ensuring that economic growth translates into tangible improvements in people’s lives.
   
5. Encouraging Private Sector Participation: By creating an enabling environment for private investment, the government can stimulate job creation and innovation. Public-private partnerships (PPPs) may offer a viable way to finance large-scale projects without exacerbating the public debt problem.
   

The International Dimension: Lessons from Global Practices

Kenya’s experience with debt management and fiscal policy can benefit from global insights. Internationally, several countries have successfully navigated high-debt periods through a combination of structural reforms and economic diversification. For instance, countries like South Korea and Singapore, which once faced significant debt challenges, have managed to transform their economies by investing heavily in education, technology, and infrastructure—all while maintaining fiscal discipline.

The International Monetary Fund (IMF) and the World Bank have often stressed the importance of aligning public debt with the country’s growth potential. In Kenya’s case, this means adopting a more measured approach to borrowing—one that prioritizes long-term investments and ensures that the financial returns from development projects are sufficient to cover the cost of borrowing.

Moreover, the adoption of modern financial management tools and digital governance can help improve efficiency in public spending. By leveraging technology to track expenditures and monitor project outcomes, the government can reduce waste and enhance the impact of its investments.

A Call for National Unity and Collective Action

In his address, Treasury CS Mbadi also emphasized the need for national unity in facing the country’s fiscal challenges. He called on Members of Parliament and various stakeholders to support his reform agenda and work together to navigate the current economic storm. “We will manage to navigate the challenges, turn the corner, and return to the path of prosperity, but this will require the collective effort of all Kenyans,” Mbadi stated.

This call for unity resonates deeply in a country where economic hardships have affected diverse segments of society. Whether in bustling urban centers like Nairobi or remote rural communities, Kenyans are united in their desire for a better future. The proposed fiscal reforms are not just technical adjustments—they are a roadmap for national recovery that will have profound implications for every citizen.

The Road Ahead: Challenges and Opportunities

Despite the daunting challenges, there is cautious optimism that Kenya can reverse its fiscal trajectory. The forthcoming budget and policy reforms represent a crucial opportunity to realign the country’s economic strategy with long-term development goals. However, success will depend on several factors:

• Political Will: Strong leadership and political consensus are essential to implement the difficult reforms required to manage the debt crisis.
  
• Public Trust: Transparent communication and accountability will be vital to restoring confidence among citizens and investors.
  
• Global Economic Conditions: Kenya’s economic recovery will also be influenced by external factors such as global commodity prices, foreign investment flows, and the overall performance of the international economy.
  

If these challenges can be met, Kenya has the potential not only to stabilize its finances but also to set the stage for a new era of growth and prosperity. The path forward may be steep, but the lessons learned from past missteps offer a valuable guide for future success.

Conclusion: Charting a New Course for Economic Resilience

Treasury CS John Mbadi’s candid admission that Kenya’s debt burden is suffocating the economy serves as both a warning and a call to action. The mismanagement of short-term loans to finance long-term projects has left the nation grappling with an unsustainable debt load—a burden that has hindered investment in essential public services and stifled economic growth. Yet, amid these challenges lies an opportunity for transformative reform.

By restructuring its debt, enhancing fiscal transparency, diversifying revenue sources, and prioritizing social investments, Kenya can begin to reverse its economic decline. The upcoming budget for the 2025/2026 financial year will be a litmus test of the government’s commitment to these reforms. With the collective effort of policymakers, parliamentarians, and the broader society, there is hope that Kenya can chart a new course toward sustainable growth and prosperity.

For everyday Kenyans—from the underpaid teachers in Migori to the small business owners in Nairobi—the promise of a reformed economy is deeply personal. It represents the possibility of better schools, improved healthcare, and a future where economic opportunities are accessible to all. As the nation embarks on this challenging journey, the call for unity and collective action has never been more urgent.

In the coming months, as policy debates intensify and reform measures take shape, all eyes will be on Kenya’s leaders. The decisions made today will not only determine the country’s fiscal future but will also shape the lives of millions of Kenyans who are counting on a brighter, more resilient economic future. With determination, transparency, and a commitment to fairness, Kenya can overcome its current fiscal challenges and build an economy that truly works for its people.

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Photo source: Google

By: Montel Kamau

Serrari Financial Analyst

7th April, 2025