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Moody's highlighted policy weakness, poor budget planning and its implementation as factors that have complicated the task of Kenya, Uganda and the United States. Tanzania faces swelling of their debt portfolio.
The agency's report indicates that the East African region is facing a debt crisis that is weakened by institutional weakness that limits its ability to create solutions policies.
"Weaknesses in public financial management and shortcomings in budget planning and implementation pose challenges in Kenya, Tanzania and Uganda," the firm said.
The firm says the region must try to contain any further increase in the debt burden in the foreseeable future, and direct limited domestic resources to productive use.
This, he says, will be important to the way creditors perceive their ability to repay. Debt in the region has been fueled by greater gaps in revenue generated by taxes and spending plans, which is normally called fiscal deficits.
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Moodys says budget deficits are the largest in Kenya, where large infrastructure-related development spending combined with moderate revenue collection has led to higher debt costs. "Kenya, which relies less on subsidies, has had the largest budget deficits in the last five years, averaging nearly 7 percent of GDP," said Moodys.
"The large budget deficits in Kenya also reflect a narrowing of the domestic revenue base, with government revenues, net of grants, declining as a percentage of GDP.Kenya is the only country of the four that is not the largest. has failed to increase its net revenue from subsidies, "the firm said.
The firm claims that the erosion of fiscal measures was one of the main reasons for its decision to reduce the country's sovereign rating to B2 in February. However, Kenya rarely spends all the money it has planned in its budget, only running 70 to 80% of the budget.
The tax collects 90% of the targets and unlike other countries in the region, Kenya relies less on donor funding, hence greater control over spending.
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The report shows that East African countries are taking on so much debt or that their debt levels are so high because of commercial loans that pose a risk to their currency.
According to a Moody's report, Kenya has the highest debt burden in the region, while Rwanda is considered the fastest accumulation of debt.
"The affordability of Kenya's debt is weakened, mainly because of an increase in commercial foreign borrowing," says Moodys in his report.
An increase in commercial borrowing in Tanzania has also increased. In Uganda, external debt remains essentially concessional, but its use of non-concessional domestic and external sources has increased.
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