America First policies are beginning to ripple across East Africa and Kenya now stands at the epicentre of this shifting global tide. The withdrawal of USAid’s support, once a cornerstone of Kenya’s health and development agenda, has triggered a fiscal reckoning with far-reaching consequences.
With over Sh252 billion in annual aid frozen and further reductions expected from European partners, the country faces an urgent question: In the absence of external assistance, will Kenya turn to debt to fill the gap? What will become of critical sectors such as health, agriculture, and social protection which have long depended on donor funding?
The trigger has been geopolitical, but the impact is deeply local. The United States, under its renewed America First posture, suspended foreign aid for 90 days.
Germany and the United Kingdom followed suit, citing strategic reprioritisations. These decisions have frozen over Sh252 billion in aid flows, with wide-ranging consequences for health, agriculture, education, and internal security.
USAid alone had contributed over Sh108 billion annually, including Sh24.9 billion to essential public health programs focused on HIV treatment, maternal care, and disease surveillance. The sudden withdrawal of such funding has left critical service delivery systems in limbo.
The immediate consequences have been severe. Donor-funded NGOs have begun large-scale retrenchments, threatening over 34,000 jobs.
Over 6.4 million Kenyans may lose access to antiretroviral treatment and basic immunisation services. In response, the National Treasury has made drastic adjustments, including a Sh68 billion cut to the health budget. While fiscally defensive, such measures jeopardise decades of gains in public health outcomes.
Compounding the problem is the drop in foreign currency inflows, which puts further pressure on the Kenyan shilling and worsens inflation. Diaspora remittances, while robust at nearly $5 billion in 2024, remain insufficient to offset the broader macroeconomic impact.
Amid this aid vacuum, the government is leaning more heavily on borrowing. As of January 2025, Kenya’s total public debt had climbed to Sh11.02 trillion split between Sh5.93 trillion in domestic debt and Sh5.09 trillion in external obligations.
More than 60 percent of government revenue is now consumed by debt servicing, leaving little fiscal space for strategic investment or social protection.
This trend not only crowds out private sector credit but also constrains long-term economic recovery. The elevated risk of currency depreciation has already resulted in an estimated Sh1 trillion loss in value on external loans since 2024.
Legal thresholds have also been breached. The debt-to-GDP ratio now stands at 63.7 percent, well beyond the statutory ceiling of 55 percent.
This breach has drawn criticism from the Controller of Budget and raised red flags among international financial institutions. The International Monetary Fund recently withdrew from its final loan review, citing a lack of fiscal discipline and waning confidence in the sustainability of Kenya’s macroeconomic policies.
To address the crisis, the government has deployed a three-pronged response: fiscal consolidation, debt management reform, and the pursuit of alternative financing.
Spending has been reallocated from development projects to essential services, and new revenue streams are being introduced through taxation of digital services and luxury goods.
However, these measures have regressive effects, particularly on small enterprises and low-income households, which are already burdened by rising living costs.
On the debt front, the 2025 Medium-Term Debt Strategy proposes a shift toward concessional loans and longer repayment terms. The goal is to reduce the debt-to-GDP ratio to 57.8 percent by 2028.
Yet without deeper reforms to address leakages, inefficiencies, and weak oversight, these targets may remain aspirational. Meanwhile, increased domestic borrowing continues to crowd out the private sector and suppress economic dynamism.
The search for alternative financing has prompted a push toward public-private partnerships, diaspora bonds, and green financing instruments.
While these mechanisms offer promise, they require sound regulatory frameworks, institutional credibility, and macroeconomic stability—none of which can be assumed in the current climate.
The socioeconomic implications are far-reaching. Reductions in fuel and food subsidies, and proposed hikes in value-added tax, are likely to exacerbate inequality and strain the social contract.
Urban youth, already facing high unemployment and cost-of-living pressures, are increasingly restive. Without a credible fiscal stabilization plan that prioritises equity and resilience, public discontent may evolve into broader instability.
Kenya’s predicament is not unique, but it is urgent. The convergence of aid withdrawal and debt accumulation reveals the limits of an externally dependent development model.
It also calls into question the political will to confront inefficiency, reform public finance, and invest in long-term productivity. The reliance on aid created a fiscal cushion. Now that cushion is gone, and the temptation to borrow indiscriminately is dangerously high.
The country must act with clarity and resolve. That means diversifying its financing base beyond donor flows and debt. It requires restoring fiscal credibility through transparency, targeted expenditure, and effective debt audits.
It also demands a diplomatic pivot to renegotiate debt obligations on terms aligned with national development priorities, rather than conditional austerity.
In the absence of these structural reforms, Kenya risks replacing one form of dependency with another. The debt trap is no longer a distant threat. It is an unfolding reality.
The writer is a researcher, Mashariki Research and Policy Centre.
