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Lower rates save Treasury Sh54bn interest expense on domestic debt
The Treasury’s interest expense on external debt fell below estimates by Sh9.66 billion to stand at Sh104.72 billion against a projected Sh114.39 billion.
Interest payments on the government’s domestic debt fell below estimates by 11.5 percent or Sh54.04 billion in the six months to December 2025, reflecting the benefit accruing to the Exchequer from falling interest rates.
New data from the National Treasury’s 2025-26 Supplementary Budget I shows that the domestic interest expenditure stood at Sh414.1 billion in the period, compared to the projected Sh468.14 billion in the June 2025 budget statement.
The decline was despite the country’s stock of domestic public debt growing by Sh511.5 billion to Sh6.837 trillion between June and December 2025.
The Treasury’s interest expense on external debt also fell below estimates by Sh9.66 billion to stand at Sh104.72 billion against a projected Sh114.39 billion.
“The total expenditure and net lending as at end December 2025 amounted to Sh2.019 trillion against a target of Sh2.097 trillion, indicating expenditures were below target by Sh77.1 billion. Transfers to county governments were below target by Sh50.4 billion,” said the Treasury.
“This under-spending primarily resulted from lower-than-anticipated domestic interest payments and pension obligations.”
Interest rates on government securities have come down in recent months in line with the Central Bank of Kenya cutting its base rate from 13 percent to 8.75 percent over the course of 10 successive monetary policy committee meetings since August 2024.
Treasury bonds auctioned in 2025 and in the first two months of this year paid coupons or interest rates of between 11.67 percent and 14.63 percent, down from highs of up to 18.5 percent in 2024.
T-bill interest rates have meanwhile fallen to a range of between 7.58 percent and 8.97 percent, from a high of 16.7 to 16.9 percent in August 2024.
While the government’s interest expenditure on existing bonds does not change when rates fluctuate, new issuances reflect the lower rates when they are sold at lower coupons.
On the external debt, the lower interest charges indicate that the government may have retired some of its more expensive syndicated loans in the period, using proceeds of new debt issuances such as the $1.5 billion Eurobond issued in October 2025.
External loans with floating interest rates will also have seen their coupons fall in line with rate cuts in the US and Europe.
Syndicated loans are usually pegged on reference rates such as the US Secured Overnight Financing Rate (SOFR) and the UK’s Sterling Overnight Index Average (SONIA), which are closely tied to the base rates of their respective central banks.
