Kenya’s cheap loans drying up, how this affects ordinary citizens [Report]

Kenya's access to external loans has significantly declined, raising fresh concerns about the country’s ability to fund large-scale projects and meet its debt obligations without straining domestic resources.

According to a recent report by Moody’s Ratings, the country’s fiscal outlook remains under pressure due to high external debt service needs without new concessional inflows.

What Moody’s is saying

In its assessment dated 22 July 2025, Moody’s highlighted that Kenya continues to face tight fiscal conditions despite modest progress in reducing its budget deficit.

The report pointed out that Kenya's reliance on external borrowing is becoming riskier due to the limited availability of concessional loans, the kind that often come with lower interest rates and longer repayment periods.

This means that while Kenya may have slightly improved its forex reserves, the country still has to pay about $3.5 billion every year to service its external debt.

Without new concessional loans to plug this gap, Kenya risks drawing down its reserves or being forced to borrow under tougher, more expensive terms.

READ ALSO: How Moody's downgrade of Kenya's currency ceiling will affect citizens & businesses

The shrinking access to cheap loans

For years, Kenya has relied heavily on concessional loans from multilateral lenders like the World Bank and IMF to fund major infrastructure and development projects from roads and ports to health and education programmes.

These loans were often more affordable than commercial loans and came with grace periods. However, as Moody’s notes, such support has reduced significantly.

The government’s access to external market-based funding sources remains contingent on reforms and IMF programme adherence.

This effectively means Kenya must now meet stricter conditions or show stronger reforms to unlock similar support.

With fewer cheap loans available and commercial borrowing being expensive, the government has little room to manoeuvre.

How this affects projects on the ground

The impact of reduced concessional lending could be far-reaching. Flagship projects that rely on external financing may stall, delay, or even be cancelled.

READ ALSO: What's in it for the youth in CS Mbadi's Sh4.29 trillion budget?

In previous years, concessional loans helped cushion the budget and allowed the government to run ambitious development plans without overly burdening local taxpayers. But now, without new inflows, many of these plans are at risk.

Why it matters for the ordinary citizen

While external debt may sound like a far-off issue to many Kenyans, its effects trickle down to ordinary life. When concessional loans dry up, the government may be forced to borrow domestically or cut spending.

This could mean fewer services, delayed salaries, or even more taxes to fill the gap.

Moreover, reliance on expensive commercial debt increases the national debt burden, meaning more money will go into debt repayment instead of development.

Moody’s also shared other worrying notes about Kenya’s financial situation:

• The government is spending more than it earns. In the 2025 financial year, Kenya’s budget deficit was 5.7% of the country’s economy (GDP), meaning the country spent much more than it collected.

• The overall debt is still very high. While the total debt dropped a little to 66.5% of GDP, it's still a big burden.

• The government borrows too much from local banks. Even though local interest rates have improved, Kenya still borrows heavily from within the country making it harder for local businesses and people to get affordable loans.

• Loan interest is eating a huge part of our income. For every Sh100 the government collects in revenue, Sh33 goes into paying loan interest alone. That leaves only Sh67 for everything else roads, salaries, hospitals, education, etc.