The Kenya Railways Corporation (KRC) is the government’s most indebted agency, holding a Sh547 billion debt from loans borrowed from China to finance construction of the Standard Gauge Railway (SGR) line.
It tops a list of five agencies that owe the government Sh880.75 billion, for loans issued to them to implement infrastructure projects and support operations, though many are struggling with repayment.
KRC also tops agencies that have not repaid loans issued to them, accumulating Sh473 billion in arrears as of June this year, shows the 2025/26 annual public debt management report.
“As at end June 2026 loan arrears comprising principal and accrued interest amounted to Sh568.9 billion. Of the total arrears, Sh473.1 billion relates to the KRC, comprising Sh322.5 billion in principal and Sh150.6 billion in interest,” Treasury said.
This means that more than three-quarters of the unpaid loans owed by State agencies and government-linked companies are tied to SGR projects.
The SGR has been in operation since mid-2017, running passenger and cargo services between Mombasa and Suswa. Since the launch of its operations.
After years of running at a loss, the SGR made a Sh3.2 billion profit in the 2025/26 financial year, offering hope that it could soon begin repaying the debt incurred to build the railway.
Kenya Airways owed the government Sh122.9 billion by the end of June, the second-highest amount. The airline’s unpaid debts stretch back 15 years to when it started an ambitious expansion drive dubbed Project Mawingu, which was centred on borrowing.
Project Mawingu was botched by Kenya Airways’ failure to dominate the African market, external factors like terrorism-linked travel advisories affecting some routes, effects of a 2013 fire at the Jomo Kenyatta International Airport, mismanagement and competition from Gulf airlines.
That failure triggered successive losses, which saw the government step in on multiple occasions to rescue Kenya Airways from collapse, the latest being a Cabinet approval to loan it Sh45 billion last month, towards a business turnaround.
The Kenya Electricity Generating Company (KenGen) also owed the government Sh75.8 billion, with its sister utility firm, Kenya Power, holding a Sh72.7 billion debt.
As opposed to KRC and KQ, which have not repaid Treasury since loans which were disbursed to them, the energy firms have repaid a total of Sh83 billion, lowering their indebtedness.
Athi Water Works Development Agency also owes the government Sh61.9 billion in loans issued by Treasury to finance a number of bulk water and sewerage infrastructure projects.
Debts by the five agencies constitute 84.4 per cent of loans issued to 49 agencies and companies where the State has stakes in.
By end of June, the 49 agencies owed the government Sh1.04 trillion, including loans issued directly to them or on-lent from external creditors, Treasury says in the 2025/26 annual public debt management report.
The majority of the agencies the government loaned to have, however, been struggling, forcing the Cabinet to approve the write-off of Sh26 billion in loans in the last financial year.
“The Cabinet approved the write-off of Sh13.29 billion in non-performing government principal loans and the waiver of Sh13.04 billion in accrued interest arrears,” the 2025/26 annual public debt management report stated.
Treasury said the write-offs were part of efforts to address long-outstanding audit queries on non-performing government loans.
Agencies whose defaulted loans were written off included Kenya Meat Commission, Moi University, Mumias Outgrowers Company Limited, Kenya Development Corporation and Co-operative Bank of Kenya.
“The Cabinet established that non-performing and dormant loans had remained outstanding for many years, in some cases dating back to the 1970s, largely due to financial constraints, cessation of operations, lack of proper or traceable loan documentation, disputes between the National Treasury and borrowing entities regarding implementation terms, changes in the law including transfer of functions and liabilities to county governments and collapse of projects or sectors for which the loans had been advanced,” Treasury stated.
Overall, less than half of the agencies that were loaned cash by the government have made any repayments.
The 23 agencies have repaid Sh92.16 billion, about 8 per cent of the Sh1.15 trillion that was originally disbursed.
Agencies that have made some repayments include KenGen (Sh57.77 billion), Kenya Power (Sh25.57 billion) and Kenya Airports Authority (Sh2.1 billion).
The National Treasury in Nairobi.
Photo credit: File I Nation Media Group
Treasury observed that by the end of June, agencies that have been loaned money directly by the government or received loans on-lent from external creditors had delayed repaying Sh568.9 billion. This included delayed payments of Sh374.79 billion in principal amounts, and Sh194.1 billion in interest.
Treasury reckons that the government needs to strengthen recovery of loans issued to agencies and restructure some of the loans where agencies are struggling.
“Arrears in the water sector entities amounted to approximately Sh45.5 billion. The continued accumulation of arrears in the sector constrains the debt-servicing capacity of the affected entities and may further weaken the financial sustainability of institutions in the sector,” it said.