Report On Consideration Of The Medium Term Debt Management Strategy For Fy 26 27 - 28 29

REPUBLICOFKENYA THENATIONALASSEMBLY

THIRTEENTH PARLIAMENT(FIFTH SESSION)-2026

PUBLICDEBTANDPRIVATIZATIONCOMMITTEE

REPORTONTHECONSIDERATION OFTHEMEDIUM-TERM DEBT MANAGEMENT STRATEGY (FY 2026/27-FY 2028/29)

FEBRUARY 2026

TABLEOFCONTENTS

| LISTOFACRONYMS&ABBREVIATIONS | LISTOFACRONYMS&ABBREVIATIONS | |--------------------------------------------------------------------|--------------------------------------------------------------------| | ANNEXURES. | ANNEXURES. | | CHAIRPERSONSFOREWORD | CHAIRPERSONSFOREWORD | | i. | Non-financial recommendations: | | ii. | Financialrecommendations | | ACKNOWLEDGEMENTS. | ACKNOWLEDGEMENTS. | | PREFACE... | PREFACE... | | a) | Establishmentand MandateoftheCommittee. | | b) | Membershipofthe Committee | | c) | CommitteeSecretariat... 10 | | (p | Parliamentary Budget Office. 10 | | 1) | INTRODUCTION. | | 2) | MACROECONOMICASSESSMENT | | 3) | FISCALPOLICYASSESSMENT 13 | | 4) | PUBLICDEBTSTOCKANDDEBTSERVICINGEXPENDITURES ..14 | | 5) | COSTANDRISKPROFILE 14 | | 6) THEMEDIUM-TERMDEBTMANAGEMENTSTRATEGY,FY2026/27-FY 2028/29 ...16 | 6) THEMEDIUM-TERMDEBTMANAGEMENTSTRATEGY,FY2026/27-FY 2028/29 ...16 | | PUBLICDEBTSUSTAINABILITYANALYSIS 17 | PUBLICDEBTSUSTAINABILITYANALYSIS 17 | | 9) SUBMISSIONSBYTHENATIONALTREASURY 20 | 9) SUBMISSIONSBYTHENATIONALTREASURY 20 | | 10) | RECEIVEDMEMORANDA 21 | | I1) | COMMITTEEOBSERVATIONS. 23 | | 12) | COMMITTEERECOMMENDATIONS .25 | | a. | Non-financialrecommendations: 25 | | b. | Financialrecommendations .26 | | 34. | ANNEXURES.. .26 |

LISTOFACRONYMS&ABBREVIATIONS

ATR

Average Time to Re-fixing

ATM

Average Time to Maturity

BPS

Budget Policy Statement

CBK

Central Bank of Kenya

CBR

Central Bank Rate

CFS

Consolidated Fund Services

DhowCSD

Central SecuritiesDepositorySystem

DSA

Debt Sustainability Analysis

GDP

Gross Domestic Product

IMF

International Monetary Fund

MTDS

Medium-TermDebtManagementStrategy

OCOB

OfficeoftheControllerofBudget

OAG

Office of the Auditor General

PV

PresentValue

PPG

Public and Publicly Guaranteed

WAIR

Weighted Average Interest Rate

ANNEXURES

Annex|

Schedulel

Annex2

Schedule2

Annex3

Adoption Schedule

Annex 4

Adoption Minutes

Annex5

Stakeholder Submissions

Annex6

Newspaperadvertisementscallingformemoranda

Annex7

2026Medium-TermDebtManagementStrategy

CHAIRPERSONS FOREWORD

The Medium-Term Debt Management Strategy (MTDS) for FY 2026/27-FY 2028/29 is a consistentwith the Constitution and thePublicFinanceManagementframework.Itprovides the National Treasury's proposed approach to meeting the Government's financing needs andforeignexchange risks-over the medium term.

In reviewing the Strategy, the Committee held a consultative engagement with the National Treasury and Economic Planning,received a written submission from the Office of the Controller of Budget, and considered inputs received through public participation in line with Article 20l(a)of the Constitution.The Committee appreciates the submissions and perspectives provided by stakeholders,which enriched the review andreinforced the importance of transparency, accountability, and public involvement in public debt management.

The Committee notes that the MTDS is being implemented in a challenging macro-fiscal context.Revenues are projected to growinnominal terms,butremainbelow levels often requiredtosustainablyfinance developmentandstrengthenfiscalresilience.Expenditure At the same time, debt service obligations continue to tighten fiscal space, underscoring the control, and sustained economic growth. The Committee further observes that the strategy's increased reliance on domestic financing presents both opportunities and risks—offering reducedforeignexchangeexposure.

Notwithstanding these concerns, the Committee is encouraged that the MTDS outlines medium term.TheStrategy's focus on smoothing the maturityprofile,strengtheningfixedrate borrowing, and maintaining prudent exposure to foreign currency liabilities is directionally sound. However, the Committee emphasizes that success will ultimately depend ondisciplined implementation,coherentalignmentbetweentheMTDSandbroaderfiscal policy instruments, and enhanced transparency in the use of borrowed resources—

The Committee remains optimistic that, with sustained reform commitment and close adherence to the fiscal responsibility principles enshrined in the Constitution, Kenya can progressively rebuild fiscal space, restore confidence in debt management, and place the debt trajectoryon a firmandsustainablepath.TheCommittee thereforepresents thisReportto the House with recommendations intended to strengthen the credibility,transparency,and effectiveness of the MTDS, while safeguarding macroeconomic stability and supporting inclusivegrowth.

J22

Examination of the Medium-term Debt Management Strategy for FY 2026/27toFY2028/29

In its considerationof the MTDS,the Committee convened one engagement with the National Treasury and Economic Planning andreceiveda writtenmemorandumfrom the Officeof the Controller of Budget (OCOB).Further,pursuant to Article 20l(a) of the Constitution, the National Assemblyfacilitated publicparticipationbyinviting memoranda,with a publicnotice advertised on 14thFebruary2026.Accordingly,the Committee received submissionsfrom the National DemocraticInstitute,Institute for Social Accountability(TISA),John Treaver Ouma,andtheBajetiHub.

CommitteeKeyRecommendations

Arisingfrom these consultativeengagements,theCommitteerecommends:

i。 Non-financialrecommendations:

The committee recommends, That,

• 1.All securitization and commitment of public money be subjected to transparent disclosure and parliamentary oversight,including publication of the fiscal implications of these commitments to the future debt sustainability.
• 2.The National Treasury scales development expenditure above the statutory minimum (30%ofallexpendituresaresetunderSection15ofthePFMAct.CAP412)over the debtrepayment capacity.
• 3.Given the declining CBR, the National Treasury should ensure that planned domestic borrowing remains appropriately sized and carefully timed so that Government demand forfundsdoesnotundulycrowdoutcredittotheprivatesector.
• 4.TheNationai Treasuryprovidearisk-mitigationplanforelection-cycleandother unavoidable spendingpressures,includingsafeguardstopreventobvious shocks to the fiscal framework over the medium term, supplementary budgets and in-year reallocations from undermining the MTDS consolidation path.

5. Future MTDS incorporate explicit sensitivity analysis and contingency measures for climate-related and growth downside risks, including mechanisms to protect priority spendingwhilemaintaining adherencetofiscal targets.

• accelerateconvergencetowardthe55%statutorydebtanchor(PVterms)underSection 50ofthePFMAct,within6months.
• 7.The National Treasury ensures that Public Private Partnerships (PPPs), securitization and other alternative financing mechanisms be fully integrated into fiscal risk reporting and
• 8.In viewof the anticipated reliance on commercial borrowing over the medium term, the National Treasury institutes robust reporting mechanisms on the utilisationof commercial

loans to enhance traceability and accountability, particularly where such proceeds are applied to general budget support.

• 9.The National Treasury and relevant institutions sustain structural reforms aimed at raising potential growth and competitiveness, including reforms that strengthen productivity, support exports,and enhance theinvestment climate,inline with the objective of improving long-term debt sustainability.

ii. Financial recommendations

1. That, the fiscal deficit target for the medium term is approved and set at 5.3 percent of GDPforFY2026/27;3.6percentofGDPforFY2027/28,and3.3percentofGDPforFY 2028/29,inlinewiththefiscalconsolidationpath;and 2. That, the country's borrowing strategy is approved at 22 percent for net external borrowingand78percentfornetdomesticborrowingascontainedinthe2026Medium Term Debt Management Strategy.

ACKNOWLEDGEMENTS

The Committee extends its gratitude to the Office of the Speaker of the National Assembly and the Office of the Clerk of the National Assemblyfor the supportextended in fulfilling its mandate of reviewing the expenditures of the Medium-Term Debt Management Strategy (FY 2026/27-FY 2028/29). Sincere gratitude is also extended to the National Treasury and the Office of the Controller of Budget for honouring the invitation andprovidingcritical information.

Finally,the Committee would like to thank theParliamentary Budget Office and the Directorate of Audit, Appropriations, and other Select Committees for the invaluable support provided in the review of the Consolidated Fund Service Expenditures and the finalizationofthisreport.

It is therefore my pleasant undertaking, on behalf of the Public Debt and Privatization Committee,totablethisreportandrecommenditforadoptionbythisHouse.

SIGNED

HON.ABDISHURIE,CBS,MP. CHAIRPERSON,PUBLICDEBT&PRIVATIZATIONCOMMITTEE

PREFACE

a)Establishmentand Mandateofthe Committee

The powers of each House of Parliament to establish committees and to make Standing Orders for the orderly conduct of its proceedings are provided for under Article I24 of the Constitution of Kenya,2010.To ensure effective oversighton matters concerning publicdebt, debt guarantees,public-private partnerships,and the privatization of national assets, the NationalAssemblyStandingOrder207Aestablishes thePublic Debt andPrivatization Committee,which is tasked with specific mandates such as:

• i. Oversight of public debt and guarantees, pursuant to Article 214 of the Constitution
• ii. Examine matters relating to debt guarantees by the National government;
• il. OversightConsolidatedFundServicesexcluding audited accounts;
• iv. Examine reports on the status of the economy in respect of the public debt;
• v. Oversight of public-private partnership programs by the national government with respect of thepublic debt;and
• vi. Oversightprivatizationof national assets.

This Committee is therefore mandated, among otherfunctions, to examine the Medium-Term Debt Management Strategy (2026/27 -2028/29) and propose recommendations to the House for adoption.

b)MembershipoftheCommittee

The Public Debt and Privatization Committee as currently constituted,comprises the followingMembersofParliament:

CHAIRPERSON

Hon. Abdi Shurie, CBS, M.P. Balambala Constituency Jubilee Party

VICE-CHAIRPERSON

Hon.Njoki Irene Mrembo, M.P Bahati Constituency Jubilee Party

Hon.Omboko Milemba M.P

Emuhaya Constituency ANC Party

Hon.(Dr.)Irene Kasalu M.P Kitui County Wiper Party

Hon.Kwenya,Thuku Zachary, M.P Kinangop Constituency Jubilee Party

Hon.Muiruri Muthama Stanley,M.P Lamu West Constituency Jubilee Party Hon. (CPA) Suleka, H. Harun.M.P

Nominated MP UDM Party

Hon.KipkorosJoseph Makilap M.P Baringo North Constituency UDA Party

Hon. Chege Njuguna M.P Kandara Constituency UDA Party

Hon.AbdiAliAbdi,M.P ljara Constituency NAP-K

Hon. Aden Daud, EBS, M.P Wajir East Constituency

Jubilee Party

Hon.(Dr.) Daniel Manduku, M.P Nyaribari Masaba Constituency ODM Party

Hon.Barongo Nolfason Obadiah,M.P Bomachoge Borabu Constituency ODM Party c)CommitteeSecretariat

The Committee was supported by the following staff in the preparation of this report:

Mr. Chacha Machage

SeniorFiscalAnalyst/HeadofSecretariat

Ms. Audrey Ogutu

Mr. Job Mugalavai

Legal Counsel I

Fiscal AnalystIl/ClerkAssistant

Ms.Edith Chepngeno

Mr. Timothy Chiko ResearchOfficerIlI

Media Relations OfficerII

Mr. George Mbaluka Office Assistant

Ms. Mwanasha Juma

AssistantSerjeant-at-Arms

Ms. Rehema Koech AudioOfficerIlI

d)ParliamentaryBudgetOffice

The Committee also received technical support from the following staff of theParliamentary Budget Office:

FA (Dr.) Martin Masinde, OGW. Director, Parliamentary Budget Office (PBO)

Mr.Robert Nyaga SeniorDeputyDirector(PBO)

Ms. Julie Mwithiga SeniorFiscal Analyst

Hon. Kirwa Abraham Kipsang, M.P Mosop Constituency

UDA Party

Hon.Letipila Dominic Eli,M.P

Samburu North Constituency UDA Party

DINTRODUCTION

1. The Medium-Term Debt Management Strategy proposes a borrowing framework to reduce the cost andriskofpublicdebtand tofinance fiscal deficits expected over the medium term.Itisprepared subjecttoSection64(2),and Section33andRegulations184 &I85PFMAct,2012.TheMTDSis required toindicate:thetotal stockof debt as at the date of thestatement,the sources of loans madetothe national government and the nature of guarantees given by the national government, the principal risks associated with those loans and guarantees, the assumptions underlying the debt management strategy and analysis of the sustainability of the amount of debt, both actual and potential. 2. The MTDS for the period between FY 2026/27 to FY 2028/29, outlines a borrowing domestic borrowing, respectively; and (b) a net financingcomposition of 22:78 for external and domestic financing,respectively. This configuration confirms that the domestic market will remain the primary source of deficit financing during the period. Broadly, the strategy aims to lower the overall cost of the debt portfolio and mitigate refinancing risks by rebalancing issuance toward medium- and long-term Treasury Bonds. On the external side,the MTDS signals continued reliance on concessional and semi-concessional resources. Commercial borrowing is expected to persist, thereby exerting upward pressure on the overall cost of financing the fiscal deficit. 3. 3.An assessment of the MTDsindicates that the costs and risks of the current debtstock areelevated,largely drivenby the structuralcharacteristics oftherising domesticdebt portfolio. As such, prudent debt management is increasingly imperative, as sustained risk exposure combined with the rising frequency and magnitude of debtservicing obligations couldundermine medium-termfiscal sustainability anddampeneconomicrecovery. Accordingly, sustained fiscal consolidation, strengthened transparency, improved efficiency in resource allocation, optimal utilization of constrained fiscal space, and firm fiscal discipline should constitutecentralpolicyprioritiesforbothnational andcounty governments over the long term.

2)MACROECONOMICASSESSMENT

EconomicGrowth

4. The 2026 Budget Policy Statement (BPS) projects real GDP growth of 5.0% in 2025 and 5.3%in 2026,up from 4.7% in2024,on the back of a rebound in agriculture,continued momentum in construction, and sustained activity across industry and services. The baseline assumes favourable agro-climatic conditions, uninterrupted implementation of infrastructure programmes, and continued strength in tourism and transport/logistics. However, recent outturns point to downside risks, notably climate-related production shocks and a moderation in services-sector growth, with GDP averaging about 4.9% in early2025and5.0%over themediumterm.Thisgrowthoutlookunderscores theneed for broad-based structural reforms to raise potential output toward the I0% GDP growth target under Kenya Vision 2030, including measures that deepen productivity, strengthen competitiveness, and accelerate Kenya's transition into a newly industrializing economy.

ii. Inflation

• 5.Inflationremainedwithin theCentral Bankof Kenya'smedium-termobjective of5.0% (±2.5percentage points) and is expected to remain anchoredwithin this bandover the strategyimplementationperiod.Headlineinflationincreasedfrom3.3%inJanuary2025to 4.6% in September-October 2025, before easing to 4.4% by January 2026.Core inflation peaked at 3.1% in mid-2025 and subsequently declined to 2.2%, pointing to contained underlying demandpressures and an effective monetary policy stance.By contrast,noncore inflation, driven largely by food and energy price movements, remained elevated at 11.2% in December 2025 and 10.3% in January 2026,reflecting persistent supply-side shocks.These pressureswere amplified by adverse weather conditions,global commodity price dynamics,higher import and logistics costs,and geopolitical developments,which present a material risk factor during implementation of the MTDs. While monetary policy volatility and externally transmitted shocks;accordingly,complementaryfiscal and structuralinterventions—includingtargeted measurestoenhancea agricultural productivity, strengthen export performance, and improve supply-chain efficiency— remainnecessarytoreinforcedurablepricestability.

ili. InterestRates and Credit

6. In 2025, monetary conditions eased markedly following the Central Bank's reduction of thepolicyratefrom11.25%to8.75%byFebruary2026,whichtranslated intolowershortterm Treasury billyields. Accordingly, yields on the 91-day, 182-day, and 364-day Treasury bills declined from 9.14%, 9.57%, and 10.8% to 7.78%, 7.8%, and 9.28%, respectively. The decline inrateshelped sustaincredit availability to thepublicsector and eased liquidity pressures amid elevated debt-service obligations.This accommodative stance improved liquidity conditions and reduced the Government's domestic borrowing costs, thereby supporting continued reliance on the domestic market for financing. However,private

sectorcredit growth\_remained\_modest\_(about\_5%)\_andwas\_highly\_sector-selective, reflectingthe costof creditandsector-specificriskconsiderations.Duringimplementation of the MTDS,maintaininginterestrate stabilitywillbe critical,given the expanded role of domestic financing in supporting development expenditure while managing risks of crowding out households andbusinesses,particularlyin a context of constrained access tointernationalcapitalmarkets.

Balanceofpayments

7. Balance of payments developments point to persistent external imbalances that heighten MTDS refinancing and foreign-exchange risk. Over 2023-2025, Kenya's current account remained in deficit,reflectingasustainedgapwhereimportdemandexceededexport earnings and net transfers.The deficit widened from-l.1%of GDPin Q3 2024to-3.2% in Q3 2025, signaling rising external financing needs and a need to address competitiveness.Innominalterms,thecurrentaccountdeficitreachedKsh135.3billion in Q3 2025 (the highest in two years) driven by a sharp increase in imports, alongside continuednetincome outflows,reduced donordisbursements andforeigninvestment. Over thesameperiod,capitalaccountinflowsremainedsubdued(aboutO.1%ofGDPin

• Q32025),whilethefinancialaccountwasvolatile,withweakernetinvestmentand financial inflows.For MTDSimplementation,these developments are important as they signal external-sectorrisks;accordingly,the efforts shouldprioritize maintaining adequate reserve buffers, aligning external borrowing with projected foreign-exchange availability, to reduce external vulnerability over the medium term.

V. ExchangeRate

8. The Kenya Shilling strengthened in early 2024, appreciating from Kshs. 159.7 to Kshs. 129 against the US dollar, and also firming against the Pound Sterling and the Euro. Overall, exchange-ratemovementssincemid-2024havebeenassociatedwithimprovedforeignstability. For MTDS implementation, these developments are material because the exchange-ratepathdirectly affects the local-currencycostofexternal debtservice and thevaluation of theexternal debtstock.Accordingly,the strategy'sexternal borrowing profile andrisk-managementmeasures should takeinto consideration the outlookfor foreign-currency inflows (export performance, commodity price developments, remittancetrends)whilecloselymonitoringexternal debtservicepressuresandthepace ofreserve accumulationto limitvulnerability to depreciation shocks over themedium term.

3)FISCALPOLICYASSESSMENT

• 9.Over the medium term, the 2026 BPS projects that total revenues will rise from Kshs. 3.53trilliontoKshs.4.04trillionandKshs.4.34trillioninFY2026/27,FY2027/28,andFY 2028/29, respectively. In ratio terms,revenues are projected to average about 17% of GDPover theperiod,remainingbelow the20%benchmarkoftencited as necessary to underpin sustainable development,fiscal resilience,and poverty reduction.Ordinary revenue—anchored on income tax and VAT—is expected to remain the mainstay, averaging about 83% of total revenue. Appropriations-in-Aid (AlA) are projected to contribute an average of lo% of total revenues; however,despite their growth, AIA resources are largely earmarked to specific expenditures, limiting their contribution to s can further constrain the general usability of revenues, potentially increasing reliance on

10. The 2026 BPS projects that total expenditure and net lending will increase from Kshs. 4.7 trillion to Kshs.4.9 trillion and Kshs.5.2 trillioninFY 2026/27,FY 2027/28,and FY 2028/29, respectively, averaging about 21.5% of GDP over the period. Expenditure 72% of total spending. While the national requirement to allocate 30% of total expenditure todevelopment spending ismet, development expenditure is projected to average only about I8% of overall expenditure annually. This suggests limited deliberate effort to raise development spending beyond the statutory minimum, which may partly account for the

• developmentoutlays thatarecentral tostrengtheningproductive capacity and,ultimately, enhancing debt repayment capability.
• I1. The fiscal deficit,being the primary driver of new debtaccumulation, is expected to remain elevated.For FY 2026/27,the deficit is projected at about Kshs.1.1l6 trillion,broadly in linewith the FY 2025/26projected level of Kshs.1.14trillion as indicated in the2026 Budget Policy Statement.Although the fiscal deficit(including grants)is projected to narrowoverthemediumtermtoKshs.837.3billion,byFY2028/29.Onthisbasis, cumulativeadditionstothepublicdebtstockareestimatedatapproximatelyKshs.2.8 trillionover the medium term,largelyon the domestic side.Implementing fiscal unavoidablecriticalexpenditures,suchaselection-relatedfinancing,thatarelikelyto occurwithinthestrategyhorizon.

4)PUBLICDEBTSTOCKANDDEBTSERVICINGEXPENDITURES

• 12.The public debtstockcontinues toexpand,increasing themacroeconomic adjustment required tokeep debton a sustainable path.As at November2025,total public debt stood atKshs.12.25 trillion,comprisingKshs.6.78 trillion(55%) in domestic debt andKshs.5.47 trillion(45%) in external debt.The stockisprojected torisefurther to aboutKshs.15.7 trillionbyJune2029.Overthesamehorizon,thedebtratioisexpectedtoaverageabout 67 percent of GDP in nominal terms, and approximately 62 percent in present value (PV) terms.Consequently,the statutory PFM benchmark of 55 percent by October2028 may not be achieved, implying continued breach of the threshold. In this context, the fiscal path underpinningthe2026MTDSdoesnotadequatelyalignwiththedebt-limitrequirement set out underSection50 of thePFMAct (Cap.412).Rising public debtis increasingly tightening fiscal space through higher debt-service obligations.Over FY2026/27-FY 2028/29,interest costs alone,averagingatKshs.1.2 trillion over the medium term,are expected to-average roughly 54 percent of GDP and to\_ consume approximately 41

percent-of-totalrevenue.ln-addition, they-are-to-be-the-largest singular-expenditure-head ofdevelopmentexpenditureoverthemediumterm,implyingthatagrowingshareof resources will be absorbed by servicing debtrather thanfinancing productivity-enhancing investments that support GDP growth.The ongoing Liability Management Operations (LMO), if pursued without an explicit Liability Management Policy (LMP)or longterm impact assessment,could increase the debt stock without delivering the intended debtrelieforrisk-reductionoutcomes.

5)COSTANDRISKPROFILE

• 13.Nodiscernibleimprovement hasbeenrecorded in the cost and riskprofile of thepublic debt stock,as key indicators deteriorated betweenJune 2024 and June 2025.The percentage ofdebtmaturinginIyear,inparticular,increasedasDomesticdebt risk The domestic debt portfolio remains more exposed to highest refinancing and interest rate risks,despite efforts tolengthen maturitiesby shifting issuance from short-term

instruments to medium- and long-term tenors. This is evidenced by: (i) a shorter Average Time to Maturity for domestic debt (6.4 years) compared to external debt (10 years); (i) a higherproportion of domesticdebt maturingwithinone year(20.5%) relativetoexternal debt (6.9%); and (ii) a higher Weighted Average Interest Rate on domestic debt (13%) compared to the external debt portfolio (4%).

i. Costofdebt&InterestRateRisk

• 14.Between June2024 and June 2025,the WeightedAverage Interest Rate(WAiR)of the overalldebt portfolioincreased from8.5%to8.8%.This movement was largely andanexpandedshareofcommercialloans,whichraisedtheWAlRonexternal debt from 3.8% to 4%, thereby sustaining upward pressure on interest rate risk exposure, Conversely,the WAlR on domestic debt declined marginallyfrom I3.2% to I3%, reflecting easingmonetaryconditionsandagradualreductionindomesticborrowing costs. Notwithstanding these developments, external debt accounted for only I.3% of interest
• 15.For the aggregate debt portfolio, the share of debt subject to re-fixing within one year increased marginally from 24.6% to 24.9%, while the Average Time to Re-fixing increased marginally from 7.3 years to 7.4 years. In addition, the proportion of total debt contracted at fixed interest rates rose from 85.2% to 86.6%.Overall, these developments suggest a modest reduction in the portfolio's vulnerability to interest rate volatility.

ii. Exchange Rate Risk

16. Exchange rate risk captures the impact of currency movements on the value and servicing costofexternaldebt.Thelevelofexposureis largelydeterminedby thesizeofthe external debtportfolioandits currencymix.Externaldebtconstituted49.3percentof total public debt as at June 2024,easing marginally to about 47 percent in June 2025, whichplacesgreaterrelianceondomesticborrowingtofinancethefiscaldeficit,the external shareisprojectedto declinefurther to about39.9 percent of the total debtstock, reinforcingthedownwardtrendinexchange-raterisk. 17. The currency composition of external debt remains a key consideration. As at June 2025, Yen (5.2%).Notably, the share denominated in USD has continued to decline over the past threeyears,while Euro exposurehasincreased.Given thatthe Eurohas exhibited higher volatility than the UsDin the last twoyears,external borrowing decisions should prioritize currencies with lower exchange-rate fluctuation risk, consistent with minimizing portfolio vulnerability.

i. Refinancing Risk

• 18.Public debt refinancing remains the most significant source of risk exposure, given the deterioration in key refinancing indicators and the potential for liquidity pressures over the medium term.The 2026 MTDS reports: (a) a marginal improvement in the Average Time to Maturity (ATM) from 8.1 years to 8.3 years, driven by an increase in external

2

• debtATMfrom9.5yearsto10years;(b)an increase indebtmaturingwithinoneyear, both asa share of GDP(fromI1.2%to13.3%)andparticularly in domestic debt,which rosefrom5.7%to7.3%ofGDP-signalingheightenedrefinancingrequirements.

19. A key concern is that refinancing pressures appear broadly distributed across the maturity spectrum over the medium term.For instance, debt maturing in less than oneyear has increasedfromUSD7.5billiontoUSD10.306billion,whichiscomparabletoamounts falling due in subsequent periods i.e. approximately USD 10.96 billion (2-3 years), USD 11.2 billion (6-10 years), and USD 10.21 billion (above 1I years). Collectively, these thatrefinancing riskwould beprogressively shifted tolonger-term maturities.

6) THE MEDIUM-TERM DEBT MANAGEMENT STRATEGY,FY 2026/27-FY2028/29

• 20.TheMTDSforFY2026/27-FY2028/29isanchoredonthemacroeconomicassumptions set outin the2026BudgetPolicyStatement.Over themedium term,the framework assumes average real GDP growth of 5.3%, inflation anchored at 5.0%(±2.5 percentage points), an improvement in revenue effort to I6.9% of GDP, and a strengthening of the primary balance from 0.4% to 1.6% of GDP, among other parameters. Consistent with these assumptions,theproposedborrowingmixaimed atminimizingthecost offinancing while containing refinancing, interest-rate and foreign-exchange risks is as follows:
• a.Domestic borrowing will provide 82% of gross financing and 78% of net financing, leveraging local market depth and enhancing predictability of funding.
• b.External borrowing will provide I8% of gross financing and 22% of net financing to diversify the funding base while managing exposure to exchange-rate and externalrolloverrisks.
• 21.Accordingly,domesticdebtcontinuestobeprimary sourceofdeficit financingresources, accountingfor\_the\_largest\_share\_offinancing.Domesticborrowingwillbeundertakenby reducingthe stockof Treasury Billswhile lengtheningthematurityprofile ofdomestic debt through the issuance ofmedium-term tolong-term debtinstruments toreduce refinancingrisk.Thiswill bespearheaded throughtheDhowCSDPlatform.
• 22.Withrespecttoexternalborrowing,theMTDSprojectsafinancingmixcomprising10% concessional loans,2% semi-concessional loans,and 6% commercial borrowing.This composition underscores thegrowingsignificance of commercial debtwithin theoverall borrowing framework, especially in light of limited access to concessional and semi concessional financing. Further, notable deviations have been observed during the implementationperiod.For instance,whereas the Government projected external borrowing ofKshs.221.2billioninFY2025/26,the2026BudgetPolicyStatement revised this figure to Kshs. 579.4 billion,representing a 262% increase within a single fiscal year. Thistrendsignalsrisingcosts of deficit financing and highlights theneedfor enhanced oversight andregulatorysafeguardson theuse ofcommercial debt,particularlygiven a) its classification as general budget support, b) Commercial borrowing carries

• comparatively higher cost and refinancing risks and is highly sensitive to market sentiment, c) and the absence of a published Liability Management Policy(LMP).
• 23.Accordingly,although the overall stock of external debt is projected to decline, the share attributable to higher-risk instruments (Commercial debt) is expected toincrease, potentially reflecting a neutral or unchanged posture on external financing over the medium to long term.This trajectory therefore underscores the need tostabilize thekey macro-fiscal variables that influence assessments by Global Sovereign Credit Rating Agencies, including macroeconomic stability, fiscal deficit trends, primary balance performance,revenue mobilizationcapacity,the debt-to-GDPratio,and theinterest-torevenueratio,amongotherrelevantindicators.

7)PUBLICDEBTSUSTAINABILITYANALYSIS

24. Debt Sustainability Analysis (DsA) compares debt burden indicators to thresholds over 20 -year projection period,if a debt burden indicator exceedsits indicative threshold, then it would suggest that a risk of experiencing some form of debt distress exists.The objective of DsA is to evaluate a country's capacity tofinance its policy agenda,and service theensuing debt without undulylarge adjustments that maycompromise its macroeconomicstabilityand/orthatofitseconomicpartners. 25. From a solvency standpoint, the Debt Sustainability Analysis indicates that the PV of debtto-GDP is projected to average about 65% over the medium term. This level remains above the 55%(+5) statutory ceiling set out under Section 50 of the PFM Act, Cap. 412, implying that the2028 target is unlikely tobe metwithin theprojected timeframe. Accordingly, additional adjustment measures will be necessary to support attainment of thethreshold. 26. From a liquidity perspective, risks are expected to remain pronounced over the medium term,reflecting heightened debt service pressures. Specifically, the debt service-torevenue (and grants) ratio is projected to stay elevated, while the external debt serviceto-exportsratiois expected tobreach theindicative limit over themedium-term horizon.

8)SUBMISSIONSBYTHECONTROLLEROFBUDGET

27. In their submission dated 24th February 2026, the Controller of Budget indicated that:

• i. The MTDS provides a structuredmedium-termframeworkfor debtmanagement and includes technically sound measures to mitigate refinancing and exchange-rate risks. However, its effectiveness is contingent on disciplined fiscal consolidation, credible While the domestic market can support the strategy in the short term, durable debt sustainability will require comprehensive fiscal reforms to reduce borrowing needs and restore the debt trajectory toward the statutory anchor.
• ii. As at 30 June 2025, the stock of public and publicly guaranteed (PPG) debt stood at Kshs. I1,814.47 billion (about 67.8% of GDP), remaining above the statutory 55% of GDP threshold set by Parliament, and thereby elevating debt distress risk.

• ili. Analysisofdomesticdebtbyholdershowsthatfinancial institutions—particularly commercial banks andinsurancecompanies—held thelargestshareofdomesticdebt (aboutKshs.5,247billionasatDecember2025).Thisconcentrationwas attributedto the relatively attractive returns on Treasury bills and bonds, especially during periods ofelevatedinterestrates.
• iv. The 2026 MTDS proposes a structural rebalancing of the financing mix, with about 82% of gross financing sourced domestically and 18% externally. The implied domestic borrowingrequirement—estimated ataboutKshs.Itrillion inFY2026/27—raises concerns regarding domestic market absorption capacity.
• V. While lowering exchange-rate exposure is prudent, heavy reliance on domestic dampen economic growth through potential crowding-outeffects.
• vi. Kenya'spublic debt ratio is higherthan some peers (e.g.,Nigeriaatabout 38%of GDP) but lower than others (e.g., Ghana, above 80%). South Africa is broadly comparable ) andBurundigenerallybelow50%.Highdebtlevels acrossemergingeconomiescan increase borrowing costs and heighten vulnerability to external shocks.
• vii. medium term.However,the framework faces risks from historical revenue underperformance, recurrent supplementary budgets, expenditure rigidities/pressures, and election-cycle fiscal dynamics.
• viii. Debt sustainability is ultimately driven more by fiscal discipline than by financing composition. Absent credible and sustained fiscal reforms, the projected debtstabilizationpathmaynotmaterialize.

7. The MTDS envisages a significant shift toward domestic financing (about 82%), which reducesexternalvuinerabilitybutelevatesdomesticrisks-particularlycrowdingout of private credit,limited market depth,and adverse growth-interestrate dynamics.

• X. The primary vulnerability in liability management measures arises from the debt-torevenueburdenrather thanmaturityconcentration.Whilesmoothingamortization profiles can spread repayments over time, it does not in itself reduce underlying fiscal pressure or the structural debt burden.
• xi. While the MTDS acknowledges governance safeguards, it does not comprehensively address broader fiscal risks,including accumulation of pending bills, quasi-fiscal liabilities, SOE debt, and the potential crystallization of Government guarantees.
• xii. constitute significant off-balance-sheet fiscal risks.The MTDS primarily manages recordeddebtandmay therefore understatetotal fiscalexposure.
• xili. African peers; however,it remains structurally narrow and concentrated. Government

financingrelies heavily onbank liquidityrather than a broad and diversified investor base, which heightens systemic risk and reinforces crowding-out pressures.

• xiv. The MTDSassumesincreased domesticissuance over themedium term.The central issue is not only the Government's capacity toissue debt,but the market's ability to absorbsustained issuancewithoutmacroeconomic destabilization.While additional issuancemaybefeasibleintheshortterm,persistentexpansioncoulddisplaceprivate investment,slowgrowth,raise systemicfinancialrisks,andincrease futureinterest costs—thereby compressing fiscal space and potentially undermining the MTDS debtstabilizationobjective.AlthoughtheMTDSaimstolengthenmaturitiestoreduce refinancing risk, market conditions may constrain implementation.
• XV. The domesticmarketcansupporttheMTDSin thenear termbutmayraiseinterest costs and intensifyprivate-sector crowding out if relied upon as theprimaryfinancing engine.Accordingly,the domesticmarketshould betreatedasa shockabsorberrather than a permanent source of expansionary financing. Sustainable success of the MTDS ultimately depends on fiscal consolidation,revenue enhancement,and expenditure rationalization.

28.TheControllerofBudgetfurtherproposed that:

• a.Strengtheningfiscalconsolidation andrestoringdebtsustainabilitythrough tighter expenditure management, enhanced domesticrevenue mobilization,and measures to expand exports would narrow the fiscal deficitandreduce reliance on debt financing.
• b. Deepening the domesticdebtmarketandbroadening theinvestorbase shouldbe prioritized to easerefinancingpressures and progressivelylower borrowing costs.
• C. Greater emphasis should be placed on maximizing access to concessional external financing,toreducethecostandriskprofileofexternalborrowing.
• d.Establishing a comprehensive public debt register, alongside improved disclosure on the utilizationofborrowedresources,wouldstrengthen transparency,accountability, andrelatedinstitutionalreforms.
• e. Deploying liability management operations—such as bond buybacks—would help smooth redemption bunching, reduce refinancing risk, and improve cash-flow management.
• f.Commitment fees should be minimized through improved loan procurement and active portfolio management, including implementing a loan commitment tracking mechanism and promptly cancelling idle or undisbursed tranches.
• g. The Controller of Budget recommended amendments to the PFM Act, 20l2 to broaden the definition of county public debt to include pending bills (payables). This would strengthen fiscal discipline, given that Section I07 of the PFM Act, read together with Regulation 25(1)(d), caps county public debt at 20% of a county's total revenue atanypointintime.

9) SUBMISSIONSBY THE NATIONAL TREASURY

29. The Principal Secretary, National Treasury, appearing before the Committee on 24th February2025,informed the Committee that: 2. 1.TheFY2026/27-2028/29MTDSwassubmittedtotheNationalAssemblypursuantto Article 201 of the Constitution, Section 64(2)(c) of the PFM Act (Cap 412A) and Regulation 200 of the PFM (National Government) Regulations, 2015. 2. The MTDS sets out the Government's optimal medium-term debt portfolio plan, including the cost-risk strategy to achieve the desired debt composition. 4. 3.The overarching objective is to ensure deficit financing needs (as reflected in the BPS) and debtservice obligations are met at the lowestpossible cost subject to aprudent levelofrisk. 4. Over FY 2026/27-2028/29, the MTDS targets the following risk-management outcomes: 6. a.Reduction of refinancing (rollover) risk through easing near-term redemption pressures and smoothing cashflowneeds. 7. b.Reduction of interest-rate risk by increasing the share of fixed-rate debt and extending the time torefixing. 8. exposure. 9. longer-term debt. 10. 5.TheMTDSwill serve as theGovernment'sroadmapforpublicdebtmanagementover FY 2026/27-FY 2028/29, with continuous monitoring of domestic and global macrofinancial conditions and exploration of borrowing diversification opportunities without undermining debt-management objectives. 11. 6.Themedium-termmacroeconomicassumptionsunderpinningtheMTDSinclude: 12. a.Real GDP growth averaging 5.3%, supported by private sector activity and BETA-relatedinterventions; 13. b.I Inflationanchored within the CBK target of 5.0% (±2.5 percentage points), with inflation remaining within the target range since 2023; and

• C. Easing domestic interest rates following a decline in the policy rate from I3.0% (Aug 2024) to 8.75% (Feb 2026), alongside a reduction in the overnight

7. As at end-June 2025, the public debt stock stood at Kshs. 1l,814.5 billion, equivalent to 65.6% of GDP in PV terms, comprising: 16. a.Domestic debt of Kshs.6,326.0 billion (about 53.5% of total debt); and 17. b.External debt ofKshs.5,488.5billion(about46.5%of totaldebt). 8. The fiscal deficit (including grants) for FY 2026/27 is projected at Kshs. 1,115.8 billion, tobe financed through net externalborrowing of Kshs.225.5 billion and net domestic financingofKshs.890.4billion.

• 9.The cost and risk of deficit financing will be minimized by adopting a gross borrowing mixof82%domesticand18%external.
• 10.Financinginstruments will include domestic issuance of Treasury bonds, and external financing throughconcessional bilateralandmultilateral loansalongsidecommercial borrowing, including potential international bond issuances.
• Il. The that the Treasury will explore innovative financing and liability management Digital Bonds via mobile money, debt swaps, and thematic/market instruments such as Samurai and Panda bonds, to finance the deficit and manage redemptions.
• 12.In present value terms, public debt is projected to decline gradually from 65.6% to 62.1% by 2030, supported by continued fiscal consolidation to create fiscal space and reducedebt-relatedrisks.

13. The Draft Liability Management Operations Policy had been prepared but however, due to austerity measures, stakeholderinput is being sought online through publication finalizationbyend-FY2025/26.

10) RECEIVEDMEMORANDA

30. The National Assembly placed a newspaper advert on 14th February 2026 calling for submission of Memoranda from thePublic on the MTDS (FY 2026/27-FY 2028/29). In response,theCommitteereceived thefollowingresponses: 31. In the submission by the National Democratic Institute, the Committee was informed that: 3. 1.Kenya'sfiscal governance framework is grounded in the Constitution and the PFMAct, Cap. 4l2A, which set out principles on transparency, accountability, and public participation; however, implementation gaps and executive dominance have weakened fiscaldisciplineacross thebudgetcycle. 4. 2.F Public debt has increased to about 73% of GDP, exceeding the recommended 55% of and limited enforcement of audit findings. 3. At the budget formulation stage, fiscal planning was assessed as fragmented and debt transparency as inadequate, including the absence of a comprehensive, publicly accessible national debt and liability register capturing guarantees, pending bills/arrears, and SOE liabilities. Public participation was also viewed as largely procedural rather 4. Concerns were raised that tax incentives are granted without robust cost-benefit term development priorities. It was proposed that key pre-budget documents be published in machine-readable formats and accompanied by public participation

2

5. At the budget approval stage, it was observed that Parliament's oversight role is supplementary spending). 6. It was further noted that loan agreements are often presented after signing, limiting meaningful legislative scrutiny. Proposed reforms included: under Article 223 and capping such expenditures at 10% of the initially voted amounts. b) requiring parliamentary approval prior to disbursement for all new loan agreements to enhance transparency and accountability. ofdomestic debt through publicly accessible digital platforms, enabling wider participation and potentiallyloweringissuance costs. 7. During the execution phase, fiscal indiscipline was reported to persist through irregular reallocations,cash flow mismatches,and accumulation of arrears.Audit follow-upwasdescribed asweak,withlimitedimplementationofAuditor-General recommendations andno enforceable sanctionsfornon-compliance.Governancegaps in SOEs and PPPs were also cited as increasing exposure to hidden liabilities, while fragmented procurement and financial data systems constrain real-time monitoring and transparency.Recommendationsincluded fullintegrationofIFMISacrossMDAs and SOEs,introduction ofenforceable timelinesfor audit follow-up,and strengthening the Auditor-General's role inPPP andprivatization audits,includingproposing a new Section 45A in the Privatization Act (2025) to mandate independent verification of assetvaluations andvalue-for-money analysis. 8. The evaluation stage was assessed as the least institutionalized component of the

stabilizationgains.

• budget cycle, citing resource constraints within parliamentary oversight committees and weak coordination among enforcement agencies.lt was observed that the Auditor-Generallacks statutorypowers tocompelimplementationofaudit recommendations. It was further noted that IFl-supported programs tend to emphasize macro-fiscal consolidation but often lack binding governance benchmarks, allowing transparency and governance deficits to persist despite short-term
• 9.Keyrecommendations included:establishing apublicNational Debt and Liability Register; integrating DSA with development planning by aligning the MTDS and MTEF to link borrowing to programmatic outcomes and the Public Investment Management framework; requiring parliamentary ratification of tax incentives and loan agreements prior to disbursement; capping supplementary expenditures under Article 223; strengthening independence anddataaccess for fiscaloversight institutions; introducing statutory sanctions for failure to implement audit recommendations; fully integrating SOEs and PPPs into fiscal reporting;institutionalizing transparent procurement disclosure; strengthening inter-agency coordination (e.g., CoB, OAG and related bodies) to monitor reforms; establishing a statutory audit recommendation

autonomyfor oversightinstitutions throughdirectcharges on theConsolidated Fund for OAG, CoB, and EACC (each not less than O.1% of the national budget); and standardizingprocurementdatadisclosure throughadoptionof theOpenContracting DataStandard (OCDS)via thePPRAportal.

Recommendation

It is recommended that thePublicFinance Management Act412 Abe amended to formalize stricter debt-reporting protocols. Such legislative reform would be essential to institutionalize parliamentary oversight and ensure that all sovereign borrowing is subject tolegislativescrutiny.

32. In the Memoranda for John Treaver Ouma, it was proposed that the Treasury to publish concessional borrowing; commitment to reduce expensive commercial debt and shift toward longer-term, lower-cost financing; transparent reporting on debt maturity, interest, currency exposure; clear policy on borrowing by state corporations and guarantees.

Recommendation

Itisrecommended that thePublicFinance ManagementAct412Abe amended to prescribe mandatory minimum disclosure standards. Such statutory requirements shall ensuretheclarity,comparability,andaccessibilityofpublicdebtdata,facilitatingrigorous fiscal analysis and informed legislative decision-making as well as measures to mitigate highcost borrowing.

• 33.In the submission by the Bajeti Hub,it was indicated that,the designation of public debt functions.Thehigh level ofpublicdebtstock and theassociated servicingcoststherefore present a significant challenge to fiscal sustainability. The institution recommended that, the national treasury should strengthen debt management strategies to reduce the reliance withfavourabletermstoloweroverall debtservicingcosts.

Recommendation

ItisrecommendedthatthePublicFinanceManagementAct412Abeamendedtoprovide for robust statutory safeguards for debt sustainability.This reform should provide clear strictly defined sustainability thresholds.Furthermore,the Act should prescribe mandatorycorrectivemechanismsuponanybreachofthesethresholds.Thesemeasures establish abalancedfiscal frameworkthatremainsconsistentwithexistingconstitutional obligations.

34. In the Submission by the Institute for Social Accountability (TISA), the Committee was informed that: 1. The Medium-Term Debt Management Strategy (MTDS) 2026/27-2028/29 comes at a time whenKenya'spublic debt burden remains historically high,and the country is officially classified at high risk of debt distress. The MTDS 2026 does not sufficiently confront the structural drivers ofKenya's debt crisis:persistent fiscal deficits,overreliance on expensive domestic borrowing, rising interest payments, and weak institutional safeguardsarounddebtmanagement andcontingent liabilities. 2. The MTDS projects a fiscal deficit of 5.3% of GDP in FY2026/27, declining gradually to 2.9% by FY2029/30. However, this consolidation path rests on optimistic around 17 per cent of GDP, and continued monetary easing alongside a stable exchange rate. If KRA fails to meet the projected revenue targets,and the deficit exceeds 5.3 per cent of GDP, there is a high likelihood of increased borrowing. Further, the heavy 91% reliance on domestic borrowing is poised to create the crowding out effect of the already struggling private sector credit, and intense pressure on domestic interest rates that contribute to reduced fiscalspace for productive developmentexpenditureandincreasedrolloverrisksresultingfrom the shortmaturityprofileofdomesticdebts. 4. 3.Recommends thattherevisionof thenominal GDPbelimited tonot morethanKES 18,0oo billion.Rationalize expenditure to ensure that thefiscal deficit does not exceed 3.5% of GDP in line with the fiscal consolidation policy. Further, urge Parliament to require a clear domestic debt retirement strategy articulating how it is spent, binding limits on short-term Treasury bill issuance, stronger prioritization of concessionalexternalfinancing,andfulldisclosureofliabilitymanagementoperations togetherwiththeirfiscalimpact. 5. 4.Recommends-that-Parliament-introduce-enforceabie guardrails,inciudinga statutory interest-to-revenue threshold, mandatory annual reporting on debt-service sustainability,andcleartimelinesforreducingtheinterestburdentobelow4percent of GDP. The National Treasury must immediately disclose all securitization arrangements to the National Assembly and seek explicit legislative authorization. TheMTDS must be revised to incorporate these liabilities before any further transactions proceed. All proposed securitizations must be subjected to intergenerational equity assessments,and levies designated by statute for specific purposesmustbelegallyringfencedfrombeingpledgedwithoutsector-specific legislation. 6. 5.Recommends that Parliament initiate legislative reforms to grant the Public Debt Management Office (PDMO) greater operational autonomy, establish an independent oversight board, require the quarterly publication of debt risk indicators and all significant debttransactions,and strengthen parliamentary scrutiny over the setting andrevision of borrowingceilings.Further recommend a time-bound refinancing risk

• androlloverriskindicators.
• 6.The stakeholder concluded byurging the National Assembly to exercise its constitutionaloversightmandateandstrengthentheMTDs2026beforeapproval to safeguardmacroeconomicstability andprotectpresentandfuturegenerations.

Recommendation

To strengthen fiscal discipline and ensure macroeconomic stability, the Public Finance revenueforecastinganddeficitcontrol.Furthermore,Section2oftheActmaybe expanded to define securitizationas a formal category of"PublicDebt,"thereby subjecting these transparency measures, the legal framework may be reformed to grant the Public DebtManagementOffice(PDMO)full operational autonomy.Amendments to thePFM Act should enhance transparency to mitigate and manage refinancing risks associated with theNationalAssemblytoexerciseitsconstitutionaloversightmandatemoreeffectively. By establishing these enforceable mechanisms, the state will protect the inte grity of public financesandsafeguardtheeconomicinterestsofbothpresentandfuturegenerations.

• 35.Overall,the Committeeobserved thatthe issuesraisedby stakeholderspointtothe need fordeeperreformsthatshouldbedevelopedthroughbroad-basedpublicparticipationto ensure they are properly institutionalised.Accordingly, the Committee will engage the effectivenessoftheutilisationofborrowedresources.

II) COMMITTEEOBSERVATIONS

Arising from the consideration of the MTDS and submissions from stakeholders,the Committeemadethefollowingpertinentobservations,THAT:

• 1.The Committee observed that the medium-term revenue outlook,while improving in nominal terms, remains structurally constrained in ratio terms, averaging about 17% of GDPoverFY2026/27-FY2028/29.Thislevelremainsbelowthe~20%benchmark often associated with sustaining development expenditure, fiscal resilience, and reducing poverty.

2. The Committee observed that Appropriations-in-Aid (AlA) are projected to contribute anaverageofaboutlo%oftotalrevenues;however,thesereceiptsare overallfinancinggap andcouldrequire theincreaseofgrossfinancing.

• 3.TheCommitteefurtherobserved thatthegrowinguseofrevenue-tyingmeasures, such as securitization of income streams, may reduce budget flexibility by presupport borrowing as general revenues become less available for discretionary financingneeds.

• 4.The Committeenoted that thefiscal deficit remains elevated and continues to drive debt accumulation. The fiscal deficit(including grants) is projected at about Kshs. I.116 strategy horizon, implying sustained borrowing requirements.
• 5.TheCommitteeobserved thatcumulative additions to thepublicdebt stock are projected at about Kshs. 2.8 trillion over the medium term, largely financed domestically. While domestic financing reduces foreign exchange exposure, the scale of domestic borrowing raises concerns over domestic market absorption capacity, upwardpressureoninterestrates,andpotential crowdingoutofprivatesectorcredit.

6. The Committee noted that theprojected PVof debt-to-GDP is expected to average about65%over the medium term,remainingabove the statutory 55%(+5) threshold under Section 50 of the PFM Act, indicating that compliance with the 2028 target is unlikelyunderthecurrentfiscalpath. 7. The Committee observed that debt service continues to tighten fiscal space, with interest payments projected to consume about 4l% of total revenue, average about 5.4% of GDP, and exceed development expenditure allocations—thereby constraining resourcesavailableforproductiveinvestmentandpriorityprograms.

• 8.The Committeenoted thatrefinancing risks remain elevated given thevolume of debt spectrum. This exposes the portfolio to liquidity pressures and heightens vulnerability toperiods of market tightening.

9. The Committee further noted that increasing reliance on commercial external borrowing, including upward revisions to projected external borrowing,elevates exposure to higher financing costs,shifts in market sentiment, and potential implications for sovereign credit ratings. Furthermore, there needs to be procedures allocatedforgeneralbudgetarysupport. 10. The Committee observed that declining concessional financing, alongside increased reliance on alternative approaches such as PPPs and securitization,may mask underlyingexternalfinancingconstraintswhilecreatingadditional contingentandfiscal

• Il.Overall,the Committee observed that the success of the MTDSis fundamentally dependent on sustained fiscal consolidation and structural reforms, particularly crediblerevenuemobilizationandexpenditurerationalization.

12) COMMITTEERECOMMENDATIONS

Arisingfrom theobservations andsubmissionsfromstakeholders,the Committeetherefore recommends asfollows:

a. Non-financial recommendations:

The committee recommends, That,

1. All securitization and commitment of public money be subjected to transparent disclosure and parliamentary oversight, including publication of the fiscal implications of these commitmentstothefuturedebtsustainability. 2. The National Treasury scales development expenditure above the statutory minimum (30%ofallexpenditures aresetunderSectionI5ofthePFMAct.CAP412)over the medium term, to strengthen productive capacity, accelerate growth, and expand future debt repayment capacity. 3. 3.Given the declining CBR, the National Treasury should ensure that planned domestic borrowing remains appropriately sized and carefully timed so that Government demand for funds does not unduly crowd out credit to the private sector. 4. 4.The National Treasury provide a risk-mitigation plan for election-cycle and other unavoidable spending pressures, including safeguards to prevent obvious shocks to the from undermining the MTDS consolidationpath. 5. Future MTDS incorporate explicit sensitivity analysis and contingency measures for climate-related and growth downside risks,including mechanisms to protect priority spendingwhilemaintainingadherencetofiscal targets. 6. 6.The National Treasury outline expenditure rationalization measures required to accelerate convergence toward the 55% statutory debt anchor (PV terms) under Section 50ofthePFMAct,within6months. 7. The National Treasury ensures that Public Private Partnerships (PPPs), securitization and other alternative financing mechanisms be fully integrated into fiscal risk reporting and 8. Inview of the anticipated reliance on commercial borrowing over the medium term,the National Treasury institutes robust reporting mechanisms on the utilisationof commercial loans to enhance traceability and accountability, particularly where such proceeds are appliedtogeneralbudgetsupport. 9. 9.TheNational Treasury and relevant institutions sustain structural reforms aimedat raising potential growth and competitiveness,includingreforms that strengthen productivity, support exports,and enhance the investment climate,in line with the objective of improvinglong-term debtsustainability.

b.Financialrecommendations

• 1.That, the fiscal deficit target for the medium term is approved and set at 5.3 percent of GDP for FY 2026/27; 3.6 percent of GDP for FY 2027/28, and 3.3 percent of GDP for FY 2028/29,in line with the fiscal consolidationpath;and
• That, the country's borrowing strategy is approved at 22 percent for net external borrowing and 78 percent for net domestic borrowing as contained in the 2026 Medium TermDebtManagementStrategy.

36.ANNEXURES

Further, pursuant to the National Assembly Standing Order 232A(5)(a), Schedule I indicates details on the stock of foreign denominated public debt, including publicly guaranteed debt, andSchedule 2indicatesdetailson thestockof domesticdebt,arehereby attached inAnnex I and Annex 2.

SIGNED

HON.ABDISHURIE,CBS,MP. CHAIRPERSON,PUBLICDEBT&PRIVATIZATIONCOMMITTEE

DATE

REPUBLICOFKENYA

13THPARLIAMENT NATIONALASSEMBLY-FIFTHSESSION-2026

PUBLICDEBTANDPRIVATIZATIONCOMMITTEEMEMBERS.

ADOPTIONSCHEDULE

REPORTONTHECONSIDERATIONOFTHEMEDIUM-TERMDEBT MANAGEMENTSTRATEGY(2026/27-2028/29)

DATE.a.S.0..3.3. TIME.....A.M. SITTING 321

VENUE....EE..bu.at....T.o!.....CowfELenc&.

| No. | NAME | SIGNATURE | |-------|--------------------------------------------------------|-------------| | 1. | The. Hon. Abdi Shurie CBS, M.P - Chairperson | | | 2. | The. Hon. Mrembo, Irene Njoki, M.P. - Vice-Chairperson | | | 3. | The. Hon. Omboko Milemba, CBS, M.P. | | | 4 | The. Hon. (Dr). Irene Kasalu, M.P. | | | 5. | The. Hon. Kwenya, Thuku Zachary, M.P. | | | 6. | The. Hon. Muiruri, Muthama Stanley, M.P. | | | 7. | The. Hon. Abdi, Abdi Ali, M.P. | | | 8 | The. Hon. Aden Daud, EBS. M.P | | | 9. | The. Hon. Barongo, Nolfason Obadiah, M.P. | |

2

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| No. | NAME | SIGNATURE | |-------|------------------------------------------|-------------| | 10. | The. Hon. Chege Njuguna, M.P. | | | 11. | The. Hon. (Dr) Daniel Manduku, M.P. | | | 12. | The. Hon. Kipkoros, Joseph Makilap, M.P. | | | 13. | The. Hon. Kirwa, Abraham Kipsang, M.P. | | | 14 | The. Hon. Letipila, Dominic Eli, M.P. | | | 15 | The. Hon. (CPA) Suleka H. Harun, M.P. | fitleu |

Committee Clerk

Date ...

Signature .