Public debt continued to rise in the first quarter of the 2025/26 financial year, largely driven by increased public expenditure, even as government attempts to keep borrowing in check.
The Debt Statistical Bulletin and Public Debt Portfolio Analysis published on Tuesday by the Ministry of Finance shows the stock of public debt rose to Shs119.4 trillion ($34.2b) in the three months to September, a 2.5 percent increase from Shs116.19 trillion ($32.3b) in June.
In dollar terms, external debt rose during the review period, but in shilling terms it declined due to exchange-rate movements. External debt stock rose from $15.54b in June to $15.89b, while in shillings, external debt reduced from Shs55.85 trillion to Shs55.44 trillion, due to appreciation of the shilling against the dollar during the period.
The Ministry of Finance noted that external debt rose mainly because the disbursements of $590.84m exceeded principal repayments of $277.52m.
A major contributor was Afrexim Bank’s budget financing of $316m, disbursed in the first quarter of the 2025/26 financial year. The report also notes that exchange-rate effects added about $30m to the external debt stock.
Despite the rise in nominal external debt, external debt as a share of GDP fell from 24.7 percent to 24.3 percent, largely due to the appreciation of the shilling (from 3,594.6 per dollar at end-June to 3,490 at end-September) and an upward revision of the 2024/25 financial year nominal GDP figures by Ubos in October.
Domestic debt rose sharply, reflecting heavier reliance on Treasury securities, with the stock surging to Shs63.94 trillion ($18.3b) from Shs60.34 trillion ($16.8b) in June due to higher financing requirements, with a notable shift toward longer-term borrowing.
Between June and September, government issued domestic securities worth Shs6.057 trillion, of which Shs2.692 trillion (44.4 percent) were Treasury bills and Shs3.365 trillion (55.6 percent) bonds, which aligns with government’s strategy to issue more long-term debt.
The cost of servicing debt also increased over the review period, with interest payments to GDP rising from 4.4 percent to 4.7 percent. Domestic interest payments increased from 3.8 percent to 4.1 percent of GDP, while external interest costs remained broadly stable at 0.6 percent of GDP.
Ministry of Finance reported that average interest on total debt remained around 8.6 percent, with external loans staying largely concessional at 2.3 percent and domestic debt remaining high at an average of 14.5 percent.
Fixed-rate debt accounted for 63.81 percent ($10.14b), variable-rate (20.51 percent, $3.26b), and no-interest-rate (15.69 percent, $2.29b).
Fixed-rate and no-interest debt shares fell slightly, while variable-rate debt increased, largely attributed to disbursements including $316m (Afrexim Bank), $5.12m (AfDB), and $0.65m (Standard Bank).
Among bilateral variable-rate creditors, China held the largest stock ($779.01m), followed by commercial creditors such as Standard Bank ($727.6m) and Afrexim ($631.18m). Under multilateral creditors, the African Development Bank contributed $386.71 million to variable-rate debt.