Nairobi, Kenya – Wednesday, July 24, 2025: Global credit rating agency Moody’s has issued a fresh warning to Kenya regarding its escalating public debt and heavy reliance on domestic borrowing. In its latest country outlook released on Wednesday, July 23, Moody’s cautioned that the government’s current financing model could further strain Kenya’s credit profile and long-term debt sustainability.
Related Story: Kenya’s debt hits Sh9.1 trillion, report
Local Borrowing Strains Credit Profile
According to Moody’s, Kenya plans to meet approximately two-thirds of its annual fiscal financing—equivalent to nearly 4% of GDP—from domestic sources. The agency warned that this ongoing strategy will continue to weigh heavily on debt affordability.
“This reliance will continue to weigh on debt affordability, a key constraint in Kenya’s credit profile,” the report noted.
Related: Read Moody’s Full Credit Rating Report on Kenya
Weak Tax Structures & Recurrent Spending
Moody’s also flagged concerns about Kenya’s tax-to-GDP ratio, which stands at just 17%, far below the regional and global averages. The agency pointed out that Kenya spends about one-third of its revenue on interest payments alone. When combined with high county allocations, pensions, and the public wage bill, over half the national budget is consumed by recurrent expenditure.
Also Read: What Kenya’s 2025/26 budget means for the economy
Massive Budget, Heavier Debt
In the 2025/26 fiscal year, Kenya unveiled its largest-ever budget, totaling Ksh4.2 trillion. According to Treasury CS John Mbadi, the government plans to borrow Ksh923.2 billion to bridge the deficit—Ksh635.5 billion domestically and Ksh287.7 billion externally.
Source: National Treasury Budget Summary 2025/26
The country’s total public debt now stands at Ksh11 trillion, split between Ksh5 trillion in domestic debt and Ksh5.09 trillion in external obligations. These include loans from multilateral lenders such as the World Bank, IMF, and bilateral partners like China and France.
Debt-to-GDP Ratio Breaches Threshold
Currently, Kenya’s debt stands at 63% of GDP, far exceeding the recommended 55% ceiling for developing economies, according to the African Development Bank. Moody’s expressed concern over this breach and emphasized the need for better fiscal discipline and more efficient tax collection strategies.
Read: AfDB’s latest Kenya Economic Outlook
Treasury Yields Drop, Interest Burden Soars
The report also highlighted a troubling interest-to-revenue ratio of 33%, ranking Kenya sixth globally among countries spending the most on debt interest. This means for every Ksh100 collected, Ksh33 goes directly to interest payments, leaving limited room for development or public services.
“Kenya’s high interest payments reduce its fiscal flexibility,” Moody’s warned.
Learn more: What is Interest-to-Revenue Ratio?
IMF Talks Crucial Amid $3.5 Billion Repayments
Moody’s advised that Kenya urgently needs to negotiate a new financing agreement with the IMF, to ease pressure from annual external debt repayments averaging $3.5 billion (Ksh450 billion). The government is set to resume talks with IMF officials in September, as it seeks budgetary support and debt restructuring options.
External Resource: Kenya’s IMF program explained
Public Concerns Over Fiscal Strategy
As the debt debate intensifies, financial experts and civil society organizations are urging the government to adopt more sustainable strategies. These include broadening the tax base, reducing wastage, and improving public sector accountability.
