Public Finance & Economic Development
High Financing Costs Across Sub-Saharan Africa Including Kenya
Kenya’s debt burden continues to grow as interest spreads over U.S. Treasuries stay high. Moody’s says weak policies and inflation are pushing up borrowing costs across the region. The impact is being felt by banks, businesses, and ordinary citizens
Kenya faces high financing costs as Moody’s flags elevated borrowing spreads. See why Kenya, Nigeria, and South Africa are under pressure.
High Financing Costs Across Sub-Saharan Africa Including Kenya
A new report by Moody’s Investors Service has sent ripples across global financial circles, warning that Sub-Saharan Africa’s major economies—including Kenya—face mounting financing costs that could threaten fiscal stability. Alongside Nigeria and South Africa, Kenya has been highlighted as a country where elevated borrowing expenses have persisted over the last five years. This comes at a time when global markets are grappling with inflation, currency volatility, and shifting monetary policies.
This July, Moody’s Investors Services warned Kenya over soaring debt costs.
According to Moody’s, Kenya’s interest spreads over U.S. Treasuries remain elevated at nearly 500 basis points, making it significantly more expensive for the country to raise capital in international markets compared to global peers. These rising costs are attributed to policy weaknesses, inflationary pressures, and difficult market conditions, all of which combine to raise investor concerns about repayment risks.
Why Kenya Is Under Pressure
Kenya’s public debt has been on an upward trajectory, climbing to nearly KSh 11 trillion (approx. US$85 billion) in 2025, according to the National Treasury. Debt servicing is now consuming more than 55% of Kenya’s revenue, leaving limited fiscal space for social services and infrastructure development. Elevated interest costs mean that Kenya must pay more to refinance existing obligations or secure fresh capital.
The challenge is compounded by a weaker shilling, which has lost close to 20% of its value against the U.S. dollar since 2022. This depreciation inflates the cost of servicing dollar-denominated debt, putting further strain on government finances. Inflation, hovering around 8%, has also reduced consumer purchasing power, weakening domestic demand.
How Kenya Compares With Nigeria and South Africa
Kenya is not alone in this struggle. Nigeria and South Africa—the continent’s largest economies—are also highlighted in Moody’s report. Nigeria faces persistent fiscal deficits and declining oil revenues, while South Africa grapples with low growth and an energy crisis. Collectively, these pressures are creating a perception of risk that drives up borrowing costs across Sub-Saharan Africa.
According to the World Bank, Sub-Saharan African economies are already spending more than 12% of GDP on debt servicing, the highest in two decades. The combination of high borrowing costs, weak currencies, and slowing growth makes external refinancing increasingly difficult.
Global Context: Why Investors Are Wary
Globally, the U.S. Federal Reserve’s tightening monetary policy has kept interest rates higher for longer, increasing the cost of capital. For emerging markets like Kenya, this means investors demand higher yields to compensate for perceived risks. In addition, geopolitical tensions—from the Russia-Ukraine war to disruptions in the Red Sea shipping lanes—have heightened uncertainty in global trade and finance.
International investors are paying close attention to Kenya’s fiscal reforms. President William Ruto’s administration has pledged to reduce reliance on external debt through domestic revenue mobilization. However, Kenya’s high dependence on agriculture and commodity exports leaves it vulnerable to global price swings, undermining fiscal predictability.
Implications for Kenya’s Banking and Business Sector
Kenya’s banking sector is directly affected by high sovereign borrowing costs. Local banks, which hold significant amounts of government securities, face rising risks if the state struggles with repayments. According to the Central Bank of Kenya, non-performing loans (NPLs) have already crept up to 15% of gross loans in 2025, reflecting rising stress among both government and private sector borrowers.
Businesses are also feeling the heat. Higher borrowing costs trickle down to the private sector, making it expensive for firms to access credit. This stifles expansion plans, reduces investment, and slows job creation. For small and medium-sized enterprises (SMEs), which account for over 70% of employment in Kenya, expensive loans mean limited growth opportunities.
The Road Ahead: Policy and Private Sector Role
Experts argue that Kenya must adopt a multipronged approach to manage financing costs. First, fiscal consolidation is critical to reassure investors. This means cutting wastage, improving tax collection, and focusing on productive investments. Second, Kenya must diversify its export base to reduce vulnerability to commodity shocks.
There is also a role for the private sector. By investing in sectors such as renewable energy, agribusiness, and digital finance, businesses can generate growth and attract sustainable financing. Development partners like the International Monetary Fund (IMF) and African Development Bank (AfDB) have emphasized the need for structural reforms that boost investor confidence.
Conclusion
Moody’s warning on high financing costs across Sub-Saharan Africa including Kenya is not just a credit rating issue—it is a wake-up call. Kenya’s elevated spreads over U.S. Treasuries underscore the urgency of implementing fiscal reforms, diversifying the economy, and strengthening financial resilience. For businesses, investors, and policymakers, the message is clear: unless structural changes are made, high financing costs could continue to choke growth prospects across the region.
Public Finance & Economic Development
Centum Launches Kenya’s First Dollar-Denominated REIT
Through its Trific unit, Centum plans to roll out a pioneering REIT priced in US dollars — a first in Kenya’s investment history. The initiative aims to attract foreign investors while deepening confidence in Nairobi’s capital markets.
Centum plans Kenya’s first dollar-denominated REIT worth $37M, boosting foreign investor confidence and deepening the country’s real estate market.
Kenya’s Centum Unit to Launch Country’s First Dollar-Denominated REIT
Kenya’s capital markets are on the brink of a historic milestone as Centum Investment Company Plc prepares to introduce the country’s first dollar-denominated real estate investment trust (REIT). The move underscores a growing appetite among international investors for Kenyan real estate and signals the country’s gradual transition toward globally aligned capital-market products.
A Landmark Move by Centum
According to Bloomberg News, Centum’s subsidiary — Two Rivers International Finance & Innovation Centre (Trific) — plans to issue a US $37 million REIT denominated in US dollars before the end of 2025.
The product will be the first of its kind in Kenya, marking a new phase of diversification within the Nairobi capital market. Centum’s Group Chief Executive James Mworia said the dollar-priced REIT aims to attract both local and international investors seeking predictable returns and protection from local-currency depreciation.
The instrument is expected to deliver an 8 percent annual return and will require a minimum investment of US $1,000, making it accessible to a wide range of investors.
Why This REIT Matters for Kenya
The launch of a dollar-priced REIT is more than a financial innovation — it’s a statement about Kenya’s evolving capital market. For years, Kenya’s real estate and investment sectors have been dominated by shilling-denominated instruments, which often deter foreign investors due to currency-exchange risk.
By pricing in US dollars, Centum’s REIT offers a hedge against shilling depreciation and provides an opportunity for investors to earn stable, foreign-currency returns from local assets. This could help deepen investor confidence, enhance market liquidity, and broaden the pool of foreign capital flowing into Kenya.
The initiative also aligns with the Capital Markets Authority (CMA) reforms that aim to expand alternative investment products, such as REITs, to support Kenya’s Vision 2030 development goals.
Key Features of Centum’s Dollar-REIT
| Feature | Details |
|---|---|
| REIT Size | Approximately US $37 million |
| Minimum Subscription | US $1,000 |
| Expected Annual Return | 8 percent |
| Asset Base | Fully leased, USD-generating property under Trific |
| Regulatory Status | Awaiting approval from the Capital Markets Authority |
| Planned Launch | Before end of 2025 |
The REIT will acquire a fully leased, revenue-generating commercial property located within Two Rivers Development — one of East Africa’s largest mixed-use projects, owned by Centum.
Market and Regulatory Implications
The launch of this REIT represents a breakthrough for Kenya’s capital-market innovation. However, it must first secure regulatory approval from the CMA, which has historically exercised caution in licensing new investment products to protect investors.
Experts believe this product could open the door for other foreign-currency-denominated instruments, helping diversify the Nairobi Securities Exchange (NSE) portfolio. In the long term, it could position Kenya as a preferred investment hub for East African property funds.
Still, challenges remain. Market analysts warn that property-valuation transparency, tenant creditworthiness, and macroeconomic headwinds — including inflation and high interest rates — could influence performance. Nevertheless, the REIT’s USD pricing significantly cushions investors from local-currency volatility.
Broader Economic Context
Kenya’s property market continues to attract institutional capital, thanks to rapid urbanization and rising demand for Grade-A commercial space. The country’s infrastructure development under projects such as Vision 2030’s Big Four Agenda and Nairobi’s affordable housing program has further boosted investor confidence.
According to data from Knight Frank Kenya, Nairobi remains one of Africa’s top destinations for high-yield commercial properties, with rental yields averaging 8 – 10 percent in prime zones. Centum’s dollar REIT is expected to capitalize on this demand while offering global investors an easy entry into Kenya’s real-estate market without direct currency exposure.
What It Means for Investors
For foreign investors, this REIT provides a stable entry point into an emerging market with high potential for real-asset growth. By earning returns in US dollars, investors mitigate the impact of local-currency depreciation — a major concern for global portfolios in frontier markets.
For local investors, the product encourages a new savings and investment culture that bridges domestic and global financial systems. As Centum sets the precedent, other developers may follow suit, introducing hybrid and offshore-linked instruments.
This will likely enhance transparency, improve reporting standards, and attract more institutional investors — such as pension funds and insurance companies — into Kenya’s real-estate sector.
A Step Toward Market Maturity
Kenya’s financial system has undergone steady reform since the 1990s, but REIT adoption has lagged due to low investor awareness and regulatory complexity. Centum’s initiative could shift perceptions by demonstrating how professionally managed, dollar-based instruments can deliver returns comparable to — or even surpassing — traditional real-estate projects.
As the Nairobi Securities Exchange seeks to boost listings and diversify revenue streams, such innovations could inject new vitality into Kenya’s investment landscape.
Conclusion
Centum Investment Company’s plan to introduce Kenya’s first dollar-denominated REIT marks a defining moment for the country’s capital markets. It reflects both confidence in Kenya’s economic fundamentals and a strategic move to align with international investment trends.
Once approved and launched, this US $37 million REIT could attract global investors seeking stable, dollar-linked returns in Africa’s most dynamic property market. More importantly, it signals Kenya’s readiness to compete in the international investment arena — one dollar at a time.
Public Finance & Economic Development
Kenya Private-Sector Growth Boosts Banks
Rising business activity is driving lending and trade-finance opportunities for Kenyan banks. SMEs are expected to lead the demand for working capital and supply-chain financing.
Kenya’s PMI rises to 52.5 in October 2025, driving lending, deposits, and digital banking opportunities for banks.
Nairobi, Kenya – Kenya’s private sector grew at its fastest pace since December 2021. The Purchasing Managers’ Index (PMI) rose to 52.5 in October 2025, up from 51.9 in September, when the private sector rebounded.
A reading above 50 indicates expansion. October’s figure reflects stronger demand, increased production, and improved business confidence.
“Output growth across Kenya’s private sector accelerated to its fastest pace in nearly four years in October,” said analysts at Stanbic Bank Kenya.
Banking Sector Implications
For banks, a stronger private sector can boost credit demand, deposit growth, and digital transactions.
Business Lending: Companies expanding production and inventory need working capital and loans. SMEs, which contribute over 30% of Kenya’s GDP, are expected to drive lending growth.
Trade Finance: Firms involved in import and export activity may increase demand for letters of credit, guarantees, and supply chain financing.
Deposits & Transactions: More business activity leads to higher deposits and transaction volumes, including digital payments and payroll processing.
Digital Banking: Kenya’s banks can expand online lending and payment solutions. Partnerships with fintech firms can help offer integrated digital services to SMEs.
Broader Economic Context
Rising private-sector activity signals stronger employment, higher incomes, and increased government revenue. Policymakers see this as a positive sign for Kenya’s business environment.
Banks that align products with government policies and SME support programs can strengthen their market position.
Risks & Opportunities
While growth is positive, banks should monitor credit quality, inflation, and operational risks. Innovative products tailored for SMEs, trade finance, and digital solutions will be crucial.
Bottom Line
Kenya’s private sector, as reflected in the October 2025 PMI of 52.5, is expanding rapidly. Banks have a window of opportunity to capture lending, deposit, trade-finance, and digital banking growth.
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Public Finance & Economic Development
Kenya Sets Q4 2025 Fringe Benefit Tax Rate at 8%
Kenya keeps the deemed interest rate steady at 8% despite recent CBK rate cuts. Businesses can now close their financial year with confidence.
Kenya Revenue Authority retains the fringe benefit and deemed interest tax rate at 8% for Q4 2025, reinforcing stability for employers.
NAIROBI, Oct. 26, 2025 — The Kenya Revenue Authority (KRA) has maintained both the fringe benefit tax (FBT) market interest rate and the deemed interest rate at 8 percent for the final quarter of 2025. This decision, announced on October 21, underscores KRA’s commitment to providing predictability in tax administration amid recent monetary easing.
Employers must apply an 8% market interest rate when valuing fringe benefits such as staff loans and other non-cash perks. The 8% deemed interest rate also applies to employer or shareholder loans where no interest is charged. From these amounts, a 15% withholding tax must be deducted and paid to the Commissioner within five working days, according to Bloomberg Tax.
Steady Policy Despite Rate Cuts
The 8% rate remains unchanged even after the Central Bank of Kenya (CBK) reduced the benchmark Central Bank Rate to 9.25% from 9.50% earlier this month. The move was intended to stimulate borrowing amid moderating inflation.
By keeping the FBT and deemed interest rates steady, KRA separates tax computation from short-term monetary fluctuations. This prioritizes predictability for employers and payroll systems. The Q4 rate covers October through December 2025 and serves as a reference for year-end tax planning.
Employer and Payroll Implications
Fringe benefit tax applies when employers provide non-cash benefits like low-interest loans, housing, or vehicles. Under Section 12B of the Income Tax Act, employers must compute taxable value using a prescribed market rate. Section 16(2)(ja) imposes a deemed interest charge on interest-free or below-market loans from foreign affiliates or related parties.
“The 8% benchmark provides continuity for businesses closing their financial year,” said a Nairobi-based tax consultant advising multinational firms. “Predictable reference rates help employers comply and avoid last-minute recalculations.”
Some experts warn that a fixed rate may not always reflect market conditions. If lending costs fall below 8%, the FBT may overstate taxable values. Conversely, if commercial lending rises, the rate may understate employees’ benefit costs.
The Legal Notice
KRA’s official notice states:
“For the purposes of Section 12B of the Income Tax Act, the Market Interest Rate is 8%. This rate shall apply for October, November, and December 2025. For the purposes of Section 16(2)(ja) of the Income Tax Act, the prescribed rate of interest is 8%. Withholding tax at 15% on the deemed interest shall be deducted and paid to the Commissioner within five working days.”
The language mirrors the previous quarter’s directive, showing KRA’s preference for consistent FBT and deemed interest rates.
Market Reaction
Industry bodies have welcomed the move. The Institute of Certified Public Accountants of Kenya (ICPAK) said the stable tax reference improves predictability for financial reporting. “A consistent rate enables employers to make reliable projections on payroll and tax obligations,” the institute noted.
Analysts caution that future adjustments may be necessary if interest rates diverge significantly. For now, the 8% benchmark is seen as a prudent choice, offering stable compliance for employers and multinational subsidiaries through year-end.
Compliance Checklist
Tax experts advise employers to:
- Update payroll and benefits systems to reflect the 8% rate for Q4 2025.
- Reassess employee loan portfolios to ensure correct FBT calculations.
- Remit withholding tax on deemed interest within five working days.
- Document compliance with KRA’s circular for audit readiness.
- Monitor new notices for Q1 2026 adjustments.
Maintaining the same rate for two consecutive quarters reduces mid-year recalculations and supports corporate financial stability.
Fiscal Context
The decision aligns with Kenya’s broader effort to strengthen domestic revenue and maintain fiscal stability under the Medium-Term Revenue Strategy. It also complements reforms aimed at simplifying compliance and broadening the tax base without sudden shocks to the private sector.
As 2025 winds down, tax consistency is becoming a key feature of the government’s fiscal agenda. With borrowing costs stabilizing and inflation easing, Kenya’s 8% fringe benefit benchmark offers certainty to employers, investors, and auditors alike.
Centum Launches Kenya’s First Dollar-Denominated REIT
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