NAIROBI (Reuters) -Kenya’s cost of servicing its debts is expected to remain stubbornly high, ratings agency Moody’s said on Wednesday, as the government leans on the domestic debt market to fund its budget shortfalls.
The East African nation has one of the highest debt interest costs to revenue ratio in the world, Moody’s said, and spends a third of government revenue on settling interest payments.
“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.
“This reliance will continue to weigh on debt affordability, a key constraint in Kenya’s credit profile.”
Finance Minister John Mbadi set the government’s fiscal deficit for the financial year starting this month at 4.8% of economic output, narrower than the 2024/25 deficit of 5.7%, when he presented the budget to parliament last month.
But Moody’s said that target could slip as the government confronts 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 said, 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.
(Reporting by Duncan Miriri, editing by Ed Osmond)
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