Kenya Spends 30% of Revenue to Service Debts—Review Note
Reflecting African debt burden, interest payment on public debt consumed Kenyan government revenue, Moody’s Ratings said in a commentary note after completion of periodic review of ratings
Moody’s completed a periodic review of the ratings of Kenya and other ratings that are associated with this issuer. The country’s credit ratings and its positive outlook remain unchanged
The ratings agency said Kenya’s caa1 credit profile reflects the country’s very weak debt affordability, with interest payments consuming more than 30% of government revenue and large gross financing needs that contribute to elevated liquidity risk.
The update noted that while the government has taken steps toward fiscal consolidation, including under the framework of an IMF-supported program, progress has been uneven and insufficient to place debt on a clear downward trajectory.
Kenya benefits from a fairly diversified economy, with relatively developed capital and credit markets that support macroeconomic resilience, Moody’s said after the completion of its review. The global ratings agency noted that these structural features have contributed to stable real GDP growth, averaging around 5% annually over the past decade.
In the fiscal year ended June 30, 2025 (fiscal 2025), Kenya’s fiscal outturn significantly underperformed relative to the budget target, with the deficit projected at 5.7% of GDP.
This slippage was driven by persistent revenue underperformance—despite recent tax reforms—and higher spending. For fiscal 2026, Kenya targets reducing the deficit to below 5% of GDP, while financing approximately two-thirds of the fiscal deficit through domestic issuance.
On the external front, Kenya’s international reserves have improved markedly, rising from $9.2 billion in January to $11 billion by June 2025—equivalent to 4.8 months of import cover.
This accumulation was supported by strong remittance inflows, subdued import demand, and robust export performance, Moody’s said. The increase in international reserves has supported the exchange rate, which has remained stable throughout the year.
Kenya’s economic strength is assessed at baa3, reflecting a moderately diversified economy and stable growth trajectory, but constrained by low per capita income. The country’s institutional and governance strength is assessed at b1, reflecting weak scores on global governance indicators, fiscal policy credibility challenges.
Moody’s noticed that Kenya’s central bank has been effective in keeping inflation within its target range, adding that the ratings reflect fiscal strength assessed at caa2, constrained by a high debt burden and weak debt affordability; event risk is assessed at b, driven by government liquidity and political risks.
Kenya’s large gross financing needs and reliance on multilateral and market-based funding expose it to shifts in investor sentiment and liquidity conditions. Political risk is amplified by recurring unrest and broader governance challenges. Foreign Investors Increase Bets on Nigeria’s Eurobonds, Rates Ease
