Borrowing money has become more expensive for Kenyan businesses, according to a new Moody's Ratings report.
The report compared several African countries in terms of their cost of accessing credit, with Kenya, South Africa and Nigeria among the most affected countries, mainly due to tough market conditions, inflation and weak policies.
The report specifically flags the rising cost of loans to the government's overborrowing, since when the government excessively borrows from local sources, it competes with businesses for the same pool of money.
This, in turn, drives up interest rates, making loans more expensive for everyone, with businesses left struggling to find affordable credit to stay afloat.
"Borrowing costs are high across the board," Moody's Senior Vice President Lucie Villa said in the report based on a study of credit conditions in Kenya, Nigeria and South Africa.
He went on, "Debt costs for banks, non-financial companies and sovereigns have increased in all three markets alongside higher policy rates during the past five years."
Another worrying issue is the shallow nature of Kenya's capital markets. Since there are limited options for businesses to raise capital besides loans, the lack of depth means businesses rely heavily on expensive sources of credit, which at times leaves entrepreneurs locked out of financing altogether.
According to Moody's, borrowing from development partners has helped lower the cost of foreign debt, but it has not been enough to offset interest rates in local and global markets.
Further, the report notes that while borrowing costs on international markets have slightly improved for Kenya and Nigeria since 2022, the difference in interest compared to countries like the United States remains huge.
Notably, Kenyan debt carries a spread of around 500 basis points above U.S. Treasury bonds. This dynamic reflects the higher risk of lending to Kenya.
So what's the remedy for high borrowing costs? According to the report, fixing the issue will take time, and the first step needs to be improvement in economic policies and better financial regulation.
More importantly, there needs to be broader access to credit to reduce borrowing costs sustainably. Until then, Kenyan businesses will continue facing a challenge trying to access financing, which in turn limits their ability to invest in new projects.
Meanwhile, Treasury Cabinet Secretary John Mbadi expects to raise Ksh149 billion from the privatisation of state companies to fund this year's budget, according to revelations made in the Annual Borrowing Plan for the 2025-2026 Financial Year.
While the report is silent on what companies will be sold to immediately raise the funds, Treasury has looped in the money as part of the budget under domestic financing, seeking to raise the Ksh613.5 billion to fund budget shortfalls.
