Kenya’s debt servicing burden is expected to remain persistently high in the near term, ratings agency Moody’s warned on Wednesday, as the country increasingly relies on its domestic debt market to bridge growing fiscal deficits. This trend, the agency said, is posing a serious challenge to the nation’s debt affordability and overall credit outlook.
In a newly released issuer report, Moody’s stated that Kenya currently has one of the highest ratios of interest payments to government revenue globally, with a staggering one-third of all state income going towards debt interest obligations. The agency cautioned that this level of debt servicing is unsustainable and places a significant strain on the country’s public finances.
“Kenya will rely predominantly on the domestic market to meet its fiscal financing needs, with approximately two-thirds of its financing—equivalent to just under 4% of GDP per year—sourced from domestic investors,” the report noted.
Moody’s warned that this growing dependence on domestic borrowing is constraining the country’s credit profile, limiting the government’s ability to pursue long-term development priorities while keeping public finances stable.
“This reliance will continue to weigh on debt affordability, a key constraint in Kenya’s credit profile,” the agency stated.
Kenya’s Finance Minister, John Mbadi, recently outlined the country’s fiscal roadmap in a budget presentation to parliament, setting a fiscal deficit target of 4.8% of GDP for the new financial year, which began this July. The target marks a modest improvement from the 5.7% deficit recorded in the 2024/25 financial year. However, Moody’s raised concerns that this target could be missed due to ongoing fiscal pressures and structural revenue challenges.
“Kenya’s revenue generation capacity remains structurally weak,” the report said, pointing to a continued failure to meet tax and revenue collection targets. Moody’s added that the lack of robust revenue performance has forced the government to depend more heavily on borrowing—both domestic and external—exacerbating its debt challenges.
Kenya’s public debt situation has become a growing concern for both local and international investors. The country has accumulated a substantial debt portfolio in recent years, much of it driven by ambitious infrastructure projects, currency depreciation, and rising interest rates globally. Servicing this debt now consumes a significant portion of the national budget, reducing the fiscal space available for essential development programs.
To address this, the government is seeking renewed support from the International Monetary Fund (IMF). Moody’s noted that securing a fresh financing arrangement with the IMF could help stabilise the situation, especially as the country faces an average of $3.5 billion in external debt repayments annually.
According to the Central Bank of Kenya, talks with the IMF are expected to resume in September, with the aim of agreeing on a new programme that could bolster investor confidence and help the country manage its external obligations more effectively.
“A successful IMF programme could anchor investor confidence and reduce external borrowing costs,” Moody’s said, stressing that the credibility and discipline associated with IMF-backed reforms could also open doors for more concessional financing and improve debt sustainability in the long term.
The potential IMF support comes at a time when global credit markets remain volatile, with many African economies—including Kenya—struggling to raise funds on favourable terms. Kenya’s last Eurobond issuance faced steep yields, and efforts to return to the international capital markets have been hampered by rising global interest rates and risk aversion among investors.
Despite these challenges, the government maintains that it is committed to fiscal consolidation and reform. In his budget speech, Finance Minister Mbadi outlined a mix of spending cuts and revenue-enhancing measures aimed at narrowing the deficit and easing the debt burden over time. However, analysts remain sceptical about the feasibility of these measures, particularly in a context of weak economic growth, inflationary pressures, and growing public discontent over the cost of living.
The Moody’s report reflects broader concerns about Kenya’s economic trajectory and its capacity to balance debt servicing with development goals. While borrowing has been essential to funding large-scale projects in transport, energy, and housing, the country now faces a difficult balancing act: meeting its debt obligations without choking off investment in social services and infrastructure.
Economists say the government must urgently reform its tax system, broaden the revenue base, and improve public sector efficiency if it is to break free from the debt trap. Others argue that Kenya needs to rethink its development model altogether, shifting from debt-fueled megaprojects to more sustainable and inclusive growth strategies.
“Kenya’s debt is no longer just a numbers issue—it’s a governance and strategy issue,” said Dr. Angela Kilonzo, a Nairobi-based public finance expert. “Without meaningful reforms, we risk spending our future before we’ve earned it.”
As the government prepares for further negotiations with the IMF and works to stabilise its fiscal framework, all eyes will be on its ability to strike a balance between urgent financial obligations and long-term economic sustainability.
For now, Moody’s message is clear: unless Kenya takes decisive steps to reduce its debt costs and improve revenue mobilisation, the road ahead will remain bumpy—both for its economy and its creditworthiness.
