Every morning for three months, as banks opened their doors and pension fund managers reviewed their portfolios, the Kenyan government quietly tapped the same institutions for cash.
By the end of September 2025, that daily borrowing habit had added up to about Sh412 billion, meaning the State was borrowing an average of Sh4.58 billion every day from the local market to keep its operations running.
New figures from the Controller of Budget show that local pension funds and commercial banks drawn by the safety and predictability of government securities sharply increased their appetite for Treasury bills and bonds, pushing domestic borrowing up by 178 per cent in the first three months of the 2025-26 financial year, despite repeated assurances that borrowing would be reduced.
On paper, government finances appeared to be improving. Receipts into the Consolidated Fund climbed to Sh1.03 trillion between July and September, representing 23 per cent of the annual target.
But beneath that headline figure lay a more sobering reality, the cash was not coming from stronger tax collections or a healthier economy, the growth was driven largely by a surge in domestic borrowing rather than improved tax performance.
Domestic borrowing accounted for more than 40 per cent of total receipts during the period, reflecting heavy uptake of Treasury bills and bonds by local banks, pension funds and other institutional investors seeking predictable returns amid economic uncertainty.
Based on the receivables in the consolidated fund, this was equivalent to Sh412billion of local loans that was recorded into the Consolidated Fund in the period.
By contrast, tax revenue which remains the backbone of government financing grew modestly and accounted for just over half of total inflows.
“To finance the budget, the government, through the National Treasury, targeted to raise funds from various revenue sources. The sources include Tax Revenue (Sh2.63 trillion), Non-Tax Revenue (Sh127.65 billion), Domestic borrowing (Sh1.10 trillion – comprising net domestic borrowing of Sh634.75 billion and internal debt redemption/roll-over of Sh463.51 billion),” said Nyakango in the National Government-Budget Implementation Review Report.
It further expected to get other revenues from external Loans and Grants (Sh561.81 billion) and other Domestic financing (Sh10.80 billion).
The Government also targeted to raise Sh672 billion from Appropriations in Aid (A-I-A) comprising Sh334.26 billion recurrent A-I-A and Sh337.74 billion development A-I-A.”
In the review period, the National Treasury issued Sh1.02 trillion from the Consolidated Fund during the quarter, with recurrent expenditure absorbing the bulk of the funds.
Development spending received just 11 per cent of its annual allocation, a sharp slowdown compared with the same period last year, when 20 per cent of development funds had already been released.
Treasury bills and bonds have remained attractive to banks and pension funds, offering relatively risk-free returns at a time of heightened economic uncertainty.
Pension funds, which are among the largest holders of government securities, have increased allocations to public debt, reinforcing the government’s dependence on the local market.
The report shows that while total expenditure reached Sh1.11 trillion in the first quarter up from Sh823.78 billion a year earlier, development projects that typically stimulate private sector activity and employment lagged behind.
Capital transfers to state agencies dominated development spending, while construction and infrastructure works absorbed a smaller share of funds.
Meanwhile, external loans and grants contributed just three per cent of total receipts during the period, reflecting slower disbursements and tougher conditions in global credit markets.
by JACKTONE LAWI
