Global credit rating agency Moody’s has issued a warning about Kenya’s growing debt burden, stating that it now has one of the highest debt servicing costs relative to government revenue in the world.
According to the agency’s latest issuer report, nearly a third of Kenya’s revenue is being spent on interest payments alone.
The situation continues to weigh heavily on Kenya’s financial health. The warning comes as the government counties to turn to domestic borrowing to plug budget shortfalls.
Moody’s estimates that approximately two-thirds of Kenya’s annual financing, equivalent to just under 4% of GDP, will come from domestic sources.
Also Read: Moody’s Warns of Kenya’s Weak Revenue Performance Despite KRA’s Ksh2.5 Trillion Tax Collection
Although the approach may reduce external vulnerability, the agency has said it also worsens debt affordability and strains Kenya’s credit outlook.
“Kenya will rely predominantly on the domestic market to meet its fiscal financing needs with approximately two-thirds of its financing, or just under 4% of GDP per year, from domestic sources.”
“This reliance will continue to weigh on debt affordability, a key constraint in Kenya’s credit profile,” the agency said in an issuer report.
Moody’s on the Projections of Treasury
At the same time, although Treasury Cabinet Secretary John Mbadi tabled the 2025/26 national budget, projecting a reduced fiscal deficit of 4.8% of GDP, down from 5.7% in the 2024/25 financial year, Moody’s expressed contrary projections.
According to the global credit rating agency, persistent fiscal pressure and weak revenue performance will work against the projections.
The agency noted that Kenya’s tax collection has consistently missed targets, further complicating efforts to narrow the deficit.
“Kenya’s revenue generation capacity remains structurally weak,” Moody’s said, warning that this could undermine fiscal consolidation efforts.
Also Read: IMF Announces End of Its Diagnostic Mission in Kenya
Only the IMF Can Save Kenya
Also, the agency noted the urgent need for Kenya to secure a new financing arrangement with the International Monetary Fund (IMF).
According to Moody’s, the IMF will help Kenya manage external debt repayments, which currently average Ksh451.5 billion ($3.5 billion) annually.
Consequently, it will help in stabilizing the country’s economy.
“A successful IMF program could anchor investor confidence and reduce external borrowing costs,” the report noted.
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