Kenya Is Paying Its Creditors Before Its Citizens: The Debt Architecture That Built the Railway and Broke the Budget
Kenya's public debt rose to 11.81 trillion shillings, equivalent to 67.8 per cent of GDP, in June 2025. The government spent 1.72 trillion shillings on debt service in the 2024-25 fiscal year. About 60 per cent of Kenya's collected tax revenues go to servicing debt. On average, Kenya spends more than $1 billion per year to service its Standard Gauge Railway debt to China alone. Debt-servicing costs in peak years equated to approximately 67.1 per cent of the country's revenue, well above the IMF's recommended threshold of 30 per cent. In June 2024, Kenya's Gen Z generation took to the streets in the most significant civil society uprising in East Africa in a decade, forced the withdrawal of the Finance Bill that President Ruto had designed to raise $2.7 billion in new taxes to service that debt, and asked the question that the IMF programme, the Chinese loan agreements, and the Kenyan Treasury's medium-term debt strategy have not answered: who decided that Kenya's citizens should pay for this, and did anyone ask them?
Kenya is one of the fastest-growing economies in sub-Saharan Africa. It registered a growth rate of 4.9 per cent in the first quarter of 2025, above the region's expected average of 3.7 per cent. It has a young, educated, digitally connected population. It has Nairobi, the most dynamic commercial city in East Africa. It has the Mombasa port, the primary entry point for landlocked Uganda, Rwanda, South Sudan, and eastern DRC. It has the Standard Gauge Railway, a 600-kilometre infrastructure investment that connects Mombasa to Naivasha and was supposed to transform the country's logistics architecture and development trajectory. What it also has is a debt burden that is consuming the fiscal space that growth was supposed to create, a debt service ratio that in its peak years exceeded what the IMF considers sustainable by a factor of more than two, and a generation of young Kenyans who understand precisely what is happening and have demonstrated that they are not willing to bear the cost silently.
The problem is architectural. Kenya's debt accumulated through a specific sequence of decisions, each individually defensible, whose cumulative effect is a fiscal position in which the state's primary obligation is to its creditors rather than to its citizens. Kenya's public debt reached KSh 10.6 trillion, equivalent to 70.0 per cent of GDP, as of end of June 2024, marking a 2.9 per cent increase from the KSh 10.3 trillion recorded in June 2023. The debt accumulated through three primary channels: bilateral loans from China for the SGR and other infrastructure; commercial Eurobond issuances at international market rates; and concessional borrowing from the World Bank and African Development Bank under IMF programme conditions.
The SGR is the most visible and most contested element of the debt architecture. Kenya secured loans worth approximately $5 billion from the Export-Import Bank of China between 2014 and 2015 to build the 600-kilometre railway from Mombasa to Naivasha. About $3.5 billion remained unpaid as of June 2024. Kenya spends approximately $1 billion annually repaying its debt to China. Kenya's biggest external debt holder is China Exim Bank, to which it owed $741 million in principal, $222 million in interest and $41 million in penalties for the 2025-2026 fiscal year alone. SGR payments to China in July accounted for more than 81 per cent of Kenya's total foreign debt service for that month.
The penalties are the most analytically significant detail. Kenya defaulted on its China Exim Bank loans for Phase 1 of the SGR. The lender imposed a fine worth $10.8 million. The Kenyan Auditor-General identified penalty interest of KES 1.95 billion in the fiscal year ended June 2022 alone. The Kenyan Auditor-General described these penalties as not a proper charge to public funds, noting: "These penalties expose the public to expenditures that could otherwise have been avoided." A state that is paying penalties to a foreign creditor for defaulting on loans taken to build infrastructure that was supposed to generate sufficient revenue to service those loans is a state whose debt architecture has failed at its most basic design assumption.
The Standard Gauge Railway was presented at its conception as the infrastructure that would transform Kenya's development trajectory. A modern rail link connecting the port of Mombasa to Nairobi, and eventually to Uganda, Rwanda, and the broader East African Community market, would reduce freight costs, decongest the Northern Corridor highway, and position Kenya as the logistics hub of East Africa. The argument was compelling. The financing structure was not.
The Export-Import Bank of China provided loans worth $3.2 billion for the initial section, enormously increasing Kenya's debt to China. Planners assumed the SGR would generate enough revenue to cover operating costs. That assumption has not been validated. The reimbursement mechanism has broken down, with arrears owed by Kenya Railways swelling to Sh413.36 billion by the end of June 2025. This arrangement has effectively locked out loan repayments, resulting in the steady accumulation of arrears. The railway moves cargo. It moves passengers. It does not generate sufficient revenue to service its own debt. The gap between what it earns and what it owes is paid by Kenyan taxpayers, through a budget that is simultaneously under pressure from every other creditor in Kenya's debt portfolio.
The currency swap negotiated in 2025 represents the most significant debt management achievement of the Ruto administration. Kenya converted its Chinese railway loans from dollars to yuan, cutting annual debt-servicing costs by $215 million. The East African nation took $5 billion in loans from the Export-Import Bank of China for the SGR. About $3.5 billion was still unpaid by June 2024. Kenya cut annual repayments on Chinese loans by Sh21.61 billion in the financial year ended June 2026 after restructuring the SGR debts. The savings are real and significant. They do not change the underlying architecture: Kenya borrowed $5 billion for a railway that cannot service its own debt, converted the currency of that debt to reduce the annual cost, and remains committed to repaying the principal over a restructured timeline while simultaneously borrowing to cover the fiscal gap that the original Finance Bill was supposed to close.
The SGR connects Mombasa to Naivasha. The debt it generated connects every Kenyan taxpayer to the Export-Import Bank of China for the next generation. The railway was built. The revenue assumption was not validated. The gap between the two is being filled by a population that was not asked whether it consented to the terms.
In June 2024, Kenya's Finance Bill proposed raising $2.7 billion in new taxes, including levies on bread, financial services, motor vehicles, and mobile money transfers. The bill's policies were in line with objectives laid out in an IMF programme aimed at increasing government revenue. The withdrawn bill sought to raise $2.7 billion in taxes to reduce the country's debt burden of more than $80 billion. It was part of a fiscal pledge to maintain alignment with a $3.6 billion IMF programme agreed in April 2021, as well as a $1.2 billion World Bank loan.
Massive tax hikes in the Finance Bill triggered widespread protests which saw demonstrators storm parliament and threaten to march on State House. President Ruto was forced to withdraw the Finance Bill, disband his Cabinet and announce austerity measures to defuse the youth-led uprising. Young people mobilised thousands to the streets, reached over 750 million people via social media, and forced President Ruto into withdrawing the bill within a short period in June 2024. At least 22 people were killed in the demonstrations. The protests did not end the debt. They ended the Finance Bill. The debt remained. The IMF programme remained. The fiscal gap remained.
What the Gen Z uprising demonstrated is the most significant political economy finding of this article. Around 80 per cent of the Kenyan population is below 35 years old. Youth unemployment stands at 67 per cent. Young Kenyans are among the most educated on the continent, but the country's growth rate has not resulted in an abundance of skilled jobs. A generation that is educated, digitally connected, politically mobilised, and carrying a youth unemployment rate of 67 per cent is a generation that understands the debt architecture it has inherited and is not willing to pay for it through taxes on bread and mobile money. The protesters' signs reading "colonialism never ended" were not historical complaints. They were a precise diagnosis of the mechanism through which Kenya's debt to the World Bank, the IMF, and China Exim Bank is being serviced through fiscal measures that extract from the poorest Kenyans to pay the wealthiest creditors.
Despite decades adhering to IMF policies, Kenya is currently facing a deepening debt crisis, with its debt-to-GDP ratio surpassing 70 per cent. The IMF's relentless push for austerity has led to the Kenyan government's controversial Finance Bill, which sought to raise $2.7 billion to partially meet IMF targets through punitive tax hikes on everyday goods.
The IMF, in its last review in November 2024, said Kenya's debt remained sustainable but vulnerable. It warned of high risks of over-indebtedness on both external and overall public debt due to slow fiscal consolidation. The IMF's definition of sustainability, debt that can be serviced without catastrophic fiscal adjustment, is a technical assessment. The Gen Z protesters' definition of sustainability, a tax system that does not require the poorest citizens to pay the most, is a political one. The two definitions are not compatible within the current debt architecture.
The withdrawal of the Finance Bill 2024 did not change the debt. It changed the political calculus of how the debt can be serviced. Following the collapse of the Finance Bill 2024, the tax-to-GDP ratio slipped to 13.3 per cent in the financial year 2024/25. The fiscal gap widened. The government borrowed more domestically to cover it. The government spent 1.72 trillion shillings on debt service in 2024/25, with the bulk going to domestic lenders. The protests did not reduce the debt. They demonstrated that the political cost of extracting from citizens to service that debt is now higher than the government anticipated. That is the most important fiscal fact in Kenya in 2026.
The evidence suggests that Kenya's debt architecture is not a crisis in the conventional sense. The debt is technically sustainable by IMF definition. The economy is growing above the regional average. The currency swap with China has reduced the annual SGR servicing cost materially. The Eurobond buyback in February 2025 reduced short-term refinancing risk. The government expects Kenya's debt-to-GDP ratio to ease to 60.6 per cent by 2030, lower than the estimated 63.2 per cent in 2026 but still above the 55 per cent benchmark. These are genuine improvements in a genuinely difficult fiscal position.
What the evidence also suggests is that the path to debt reduction runs through fiscal measures that the Gen Z uprising has made politically more costly and that the IMF programme requires regardless. Kenya's Controller of Budget has urged the National Treasury to lower the debt-to-GDP ratio to 55 per cent by 2029, noting that the ratio remains significantly higher than the IMF's recommended threshold of 50 per cent for developing countries. Moving from 67.8 per cent to 55 per cent by 2029 requires either faster growth, reduced spending, higher taxes, or some combination of all three. The Finance Bill 2024 was the attempt to deliver the higher taxes. The protests withdrew it. The Finance Bill 2026, signed into law by President Ruto in June 2026, represents the second attempt, more cautious in its tax proposals, more careful in its political framing, and facing a population that has already demonstrated what happens when the cost is considered too high.
Kenya's debt architecture is the extraction economy applied to sovereign finance. The infrastructure was built with borrowed money. The borrowing terms were negotiated between governments and institutions with no meaningful participation by the citizens who will repay the debt. The repayment mechanism, higher taxes on bread, mobile money, financial services, and everyday goods, extracts from the most economically precarious segment of the population to service obligations owed to the wealthiest creditors: the World Bank, the IMF, and the Export-Import Bank of China.
The Gen Z uprising of June 2024 was not a protest against infrastructure. It was a protest against the decision that the cost of the infrastructure should be borne primarily by citizens who did not design the debt architecture, did not negotiate its terms, and who face 67 per cent youth unemployment in an economy whose growth rate has not produced the jobs that would make the debt bearable. The protesters were right about the mechanism. They were right about who bears the cost. They were not wrong to refuse.
The debt is not going away. The IMF programme continues. The SGR loan continues. The Eurobond matures and is refinanced. The fiscal gap is filled by domestic borrowing that raises the domestic debt stock and crowds out the private sector investment that would create the jobs that would make the tax base sufficient to service the external debt without extracting from the poor. This is the loop that the debt architecture produces. Kenya's Gen Z generation broke one iteration of the loop in June 2024. Whether the loop can be broken structurally depends on whether the growth trajectory, the debt management strategy, and the political will to distribute the cost more equitably can be sustained simultaneously. The evidence of 2024 and 2025 suggests that all three conditions are present in partial form. None of them is sufficient alone.
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