Global rating agency Moodys has cautioned Kenya to ease its foot on the debt pedal, lest it drives deeply into a crippling debt crisis.
The Agency has particularly raised its eyebrows over the considerable interest payments Central Bank of Kenya (CBK) has been offering to treasury bond investors over the past five years.
Moodys says if the state is unable to tame its debt appetite and restore its fiscal strength, capacity to absorb future financial shocks could be compromised.
Central Bank of Kenya (CBK) data shows that over the last three months of this year, between July and September 2020, investors have been offered Treasury Bonds worth KSh 220 Billion. Average interest rates offered have been rising from 10.26% to 11.87% over the past 90 days.
The Agency said that the amount of Treasury Bills auctioned is enormous, at 8.7 % of GDP at the end of June 2020, which leaves Kenya vulnerable to market sentiment and a rise in its borrowing costs.
Figures also indicate that Government debt levels have risen from KSh 5.8 trillion in July 2019 to KSh 6.7 trillion as at 20th June, 2020.
Moodys is recommending that the state embarks on a credible fiscal consolidation plan that will determine its ability to contain any rise in borrowing costs and liquidity or rollover risk.
Similar demands have been made by the International Monetary Fund(IMF), which has given time to Kenya to deal with COVID-19 disruptions before it can resume fiscal consolidation.
According to the IMF, the pandemic is taking a severe toll on the Kenyan economy, significantly cutting off growth and unleashing substantial financial needs.
“It is important that Kenya resumes its fiscal consolidation plans to reduce macroeconomic vulnerabilities once the crisis abates,” said Tao Zhang Acting IMF Deputy Managing Director in May after its board discussions on Kenya.
Measures to deal with the pandemic involve tax exemptions, cuts and waivers, which Moodys reckon will hit on tax revenues.
In its outlook, Treasury says the pandemic has worsened revenue performance in 2020/21.
Other rating agencies like Fitch, have downgraded Kenya’s outlook from stable to negative owing largely to the bulging debt load.