Moody’s warns Kenya’s high interest costs pose fiscal risks as debt hits KSh 10.5T. IMF deal seen as key to easing pressure.
Moody’s Sounds Alarm on Kenya’s Soaring Debt Costs
Moody’s Investors Service has flagged growing fiscal vulnerabilities in Kenya, warning that the country’s debt servicing costs remain among the highest in the world. The caution comes as Nairobi increasingly turns to domestic borrowing to bridge widening budget deficits.
In its latest sovereign risk assessment, released on Wednesday, July 24, 2025, Moody’s painted a grim outlook, citing surging interest payments, weak revenue performance, and mounting external liabilities. These trends, the agency warned, could undermine Kenya’s credit profile and erode investor confidence.
Debt Servicing Pressure Deepens
Kenya now spends close to one-third of its government revenue on interest payments, making it one of the worst-performing countries globally in terms of debt affordability, according to Moody’s.
As of the 2023/2024 fiscal year, Kenya’s total public debt stock stood at KSh 10.5 trillion ($81.9 billion). Of this, KSh 5.4 trillion ($41.7 billion)—or 51.1%—was domestic debt. Debt servicing costs during the same period hit KSh 801.2 billion ($6.2 billion), with KSh 622.5 billion ($4.81 billion) going to interest payments alone, representing 27.2% of total revenue.
“Kenya will rely predominantly on the domestic market to meet its fiscal financing needs, with approximately two-thirds of financing—just under 4% of GDP per year—sourced locally,” Moody’s noted.
Budget Deficit Shrinking, But Challenges Remain
Finance Minister John Mbadi projects a reduction in the budget deficit to 4.8% of GDP in 2025/26, from 5.7% the previous year. However, Moody’s remains skeptical, citing structural flaws in tax collection and underwhelming revenue performance.
Domestic Borrowing: A Double-Edged Sword
Kenya’s reliance on domestic markets deepened in FY 2022/23 as the country faced a $2 billion Eurobond maturity during a period of tight global credit, rising interest rates, and a weakening shilling. With external markets unfavourable, Kenya shifted inward—but at a cost.
Local borrowing has pushed interest rates higher, crowded out private sector lending, and worsened debt sustainability.
Kenya’s debt-to-revenue ratio jumped from 58.8% in 2022/23 to 68% in 2023/24, while short-term, high-interest domestic debt forced frequent rollovers and increased refinancing risks.
IMF Talks: A Potential Lifeline
Moody’s emphasized the urgency of securing concessional funding to ease liquidity pressure. A new deal with the International Monetary Fund (IMF) could provide critical support.
Central Bank Governor Kamau Thugge confirmed that discussions with the IMF are ongoing, with the next review scheduled for September 2025.
“A successful IMF programme could anchor investor confidence and reduce external borrowing costs,” Moody’s noted.
An IMF agreement could also unlock longer-term, lower-cost financing and reduce Kenya’s overreliance on expensive domestic markets.
Credit Profile in Jeopardy
Moody’s warned that Kenya’s greatest risk is not the size of its debt, but its affordability. The debt-to-GDP ratio, currently at 68.2%, is still manageable—but the share of revenue consumed by interest payments is dangerously high.
Failure to meet fiscal targets or finalize an IMF programme could trigger a credit rating downgrade, push up borrowing costs, scare away investors, and spark capital flight.
