By Enyichukwu Enemanna
A U.S. rating firm, Moody’s, says Kenya’s cost of servicing its debts is expected to remain stubbornly high as government relies on the local debt market to fund its budget shortfall.
“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,” the agency said in an issuer report released on Wednesday.
“This reliance will continue to weigh on debt affordability, a key constraint in Kenya’s credit profile,” it added.
According to Moody’s, the East African nation has one of the highest debt interest costs to revenue ratios in the world. It added that Kenya spends a third of government revenue on payment of interest rates.
During the budget presentation before the parliament last month, Finance Minister John Mbadi set the government’s fiscal deficit for the financial year starting this month at 4.8% of economic output, lower than the 2024/25 deficit of 5.7%.
But Moody’s said this target may not be achievable as the government faces acute fiscal pressures.
“Kenya’s revenue generation capacity remains structurally weak,” Moody’s said, citing missed revenue collection targets.
The government needs to secure a new financing programme with the International Monetary Fund, the ratings agency proposed, to help it deal with annual external debt repayments that stand at $3.5 billion on average.
The government will hold another round of talks with IMF officials in September in a bid to clinch the programme, the central bank chief Kamau Thugge said last month.
“A successful IMF programme could anchor investor confidence and reduce external borrowing costs,” Moody’s said.
The East African country has endured high cost of living, leaving citizens frustrated. An attempt by President William Ruto to increase tax last year led to deadly protests in which over 50 persons were killed.
Fearing another round of protests, Ruto presented a 2025 Finance Bill which was passed by the parliament without the tax hike component.
