Global credit rating agency Moody’s has raised alarm over Kenya’s growing dependence on domestic borrowing to service its high public debt. In its latest economic assessment, Moody’s warned that the strategy is unsustainable and could weaken the country’s financial stability in the long term.
According to Moody’s, shifting the repayment burden to local markets may ease immediate foreign exchange pressures, but it increases the cost of borrowing, crowds out private sector credit, and heightens inflation risks. The agency emphasized that Kenya’s debt restructuring must be paired with fiscal discipline and structural reforms to be effective.
Kenya’s public debt stood at over KSh 11 trillion by mid-2025, with a substantial portion of it falling due between 2025 and 2028. To manage this burden, the government has turned to domestic treasury bonds and bills, often at higher interest rates, to avoid defaulting on external obligations.
However, Moody’s cautioned that excessive reliance on internal borrowing could destabilize the banking sector, reduce development funding, and escalate repayment costs for future budgets. The firm reiterated the need for Kenya to broaden its revenue base, improve tax compliance, and cut non-essential expenditure to restore fiscal balance.
The warning comes as the Ruto administration pushes forward with its Medium-Term Revenue Strategy and tax reforms aimed at enhancing domestic resource mobilization. Still, analysts argue that political goodwill and transparency will be key in regaining investor confidence and reversing the country’s negative credit outlook.
