Kenya is spending a larger proportion of its revenue on paying debts than its peers Uganda, Rwanda and Ghana, international rating agency Fitch has said in its latest assessment of the economy.

The agency retained the country’s rating at negative outlook, the same as its previous view late last year, and worse than the stable rating that another agency Standard & Poor’s gave the country earlier this year.

The largest economy in East Africa spends 16.5 per cent of its revenue on interest payments, compared with 9.6 per cent spent by other countries with a similar credit rating.

“The debt servicing costs consume an outsized portion of Kenya’s revenue. Both total debt and interest payments as a percentage of revenue, at 262 per cent and 16.5 per cent respectively, are higher than the B medians of 227 per cent and 9.6 per cent,” said Fitch.

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Fitch gave Kenya a B+ rating with a negative outlook due to the country’s debt position. Rwanda and Uganda enjoy a better prospect rating than Kenya, with their outlook classified as stable.

A negative outlook shows that the rating agency expects Kenya to slide back in the rating ladder rather than go up.

Fitch said it expected the country to hold peaceful elections with its concerns pegged on the government’s insatiable appetite for debt. Over the past five years, Kenya’s debt has doubled to Ksh3.6 trillion ($3.6 billion), which is 53 per cent of the country’s GDP.

Last year Kenya spent $2 billion on interest payments, with $1.7 billion being for local debt.

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The higher interest payments come at a time the country has turned to international commercial loans to fund its ambitious growth plans. Commercial external debt stood at $4.3 billion as at the end of June, which is nearly a quarter of the country’s total foreign debt.

Besides a Eurobond issued in 2014 of $2.75 billion, the country has also taken up two syndicated commercial loans totalling $1.35 billion. Previously, Kenya was reliant on concessional borrowing.

Revenue

Kenya’s rapid accumulation of debt, mainly from China, has been a source of worry for many economists who argue that the country may not generate enough revenue to service the loans.

“The failure to translate newly built infrastructure into private sector growth and higher tax revenue could also be a threat to fiscal consolidation and to debt sustainability,” reads the Fitch report.

Fitch estimates that the budget deficit in the fiscal year that ended in June 2017 widened to 8.3 per cent of GDP, above the government’s revised target of 6.9 per cent, signalling higher borrowing to cover the gap.

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The widening fiscal deficit was attributed to accelerated implementation of infrastructure projects expected to spur the current administration’s campaigns.

Other international rating agencies that have rated Kenya this year have given it a stable outlook. Standard & Poors in April said it had a stable outlook for Kenya, a position supported by Chinese Dogong Agency in May.