Tax Money Will Pay KSh 986.73 Billion in Local Debt Interest
Key Highlights
- The Treasury has budgeted KSh 986.73 billion in interest on local loans for 2026/27.
- Banks held about KSh 2.59 trillion of that debt at the end of July, so a large slice of the interest bill will land with lenders.
- That is tax money leaving household budgets for bond coupons.
The National Treasury has set aside KSh 986.73 billion this financial year to pay interest on loans raised inside Kenya. That figure is in the July 2026 monthly debt bulletin. It is not a one-off cheque to one bank. It is the coupon bill on the local debt stock, paid from taxes.
In July alone the Treasury paid KSh 73.79 billion of that interest. Bonds took KSh 66.16 billion. Bills took KSh 7.56 billion. Last year the domestic interest budget was KSh 883.76 billion. The new line is higher because the local debt pile is higher.
Banks are large holders of that pile. At the end of July they held KSh 2.59 trillion of domestic debt, up from KSh 2.54 trillion in June. The full local stock was KSh 7.46 trillion. That is about one shilling in three. A similar share of the interest bill is the origin of the widely used KSh 342 billion estimate for banks. Treasury does not print a separate banks-only interest line. The 342 figure is a slice of the KSh 986.73 billion budget, not a named transfer.
The same month your loan rate barely moved
The Fourth Quarterly Economic and Budget Review for 2025/26 puts average commercial bank lending rates at 14.4 per cent in June 2026, down from 15.3 per cent a year earlier. Deposit rates fell faster, to 6.8 per cent from 8.4 per cent. The gap between what banks pay savers and what they charge borrowers widened to 7.5 percentage points.
That is the household pinch. Tax money services government paper that banks hold. The same banks still charge around 14 per cent on many loans. A cheaper policy rate has not shown up as a cheaper personal loan in the same size.
Total public debt at the end of July was KSh 13.23 trillion, about 71 per cent of GDP. Domestic debt was KSh 7.46 trillion. Foreign interest for 2026/27 is separately budgeted at about KSh 267.51 billion. The heavy bill is the local one.
Who else sits on the register
Pensions held about KSh 1.06 trillion of the local stock in July. Insurers held about KSh 1.03 trillion. Other financial firms held about KSh 1.16 trillion. Households held about KSh 455 billion. When the Treasury pays interest, those books earn too. Banks are the largest single group, not the only one.
This is the same government-paper market described in Nairobi's bond trading. It is also the market that has lifted listed bank stocks, including the Equity rally that repriced James Mwangi's stake.
What the next prints will show
Net domestic financing by end-July was KSh 141.59 billion against a 2026/27 local borrowing target of KSh 987.36 billion. More auctions are already in the diary. Each successful sale adds to the stock that must be serviced.
The checkable facts sit in the Treasury bulletin: KSh 986.73 billion budgeted for local interest this year, KSh 73.79 billion paid in July, banks holding KSh 2.59 trillion of the local debt. The rest is arithmetic and the loan rate you are still paying.
In Summary
- How much local interest is budgeted this year?
- The National Treasury's July 2026 debt bulletin sets the 2026/27 budget for domestic interest at KSh 986.73 billion. July alone paid KSh 73.79 billion.
- How much of the local debt do banks hold?
- At the end of July 2026 banks held KSh 2.59 trillion of domestic debt, out of a local stock of KSh 7.46 trillion.
- What does that mean for a taxpayer with a loan?
- Interest on government paper is paid from taxes. Average bank lending rates were still 14.4 per cent in June 2026, while deposit rates had fallen to 6.8 per cent.