Global credit rating agency Moody’s has concluded the review for Kenya’s downgrade following a process that was initiated on May 12, 2023 confirming Kenya’s negative outlook.

Further highlights ongoing challenges and risks facing the country’s economy.

With a B3 rating, which is a speculative-grade rating commonly referred to as “junk” status, this is a signal that the nation’s ability to meet its financial obligations is a bit uncertain.

The negative outlook also implies that Moody’s sees a higher likelihood of a downgrade in the future, which could be prompted by various factors affecting the country’s economic prospects.

The negative outlook reflects the balance of risks remains to the downside risks relate primarily to liquidity risk and elevated refinancing needs against limited external financing options and reliance on the expensive domestic financing of the fiscal deficit.

“The government will face substantial external amortizations even after the 2024 uerobond maturity, in addition to ongoing material deficit,” Moody said.

The downgrade comes days after Fitch issued a downgrade for Kenya making it harder for the country to access external capital at a time when local capital is expensive.

Fitch revised Kenya’s long-term foreign currency issuer default rating to negative from stable and affirmed it at ‘B’ which according to the agency, balances Kenya’s relatively high government debt and external indebtedness and its narrow revenue base.

Moody’s maintains that Kenya’s financial commitments, although currently subject to a considerable degree of credit risk, still have a certain degree of stability.

Moody’s expressed concerns over the balance of risks related to Kenya’s finances, with the downside risks primarily stem from high fiscal deficits, mounting public debt levels, and structural weaknesses in the economy.

The review noted that these factors could hinder the government’s ability to implement effective fiscal policies, posing challenges in containing the debt burden and maintaining macroeconomic stability.
The global credit rating agency also emphasized that the resolution of the negative outlook would be contingent on several key developments.

Going forward, Moody’s will closely monitor Kenya’s progress in implementing her fiscal and economic reforms. Successful reforms could alleviate some of the immediate pressures on the economy and signal the government’s commitment to addressing the existing vulnerabilities.

The agency will also be observing Kenya’s external position closely and its ability to manage external shocks. A healthy external balance and sufficient foreign exchange reserves are essential to buffer against external risks and ensure a stable currency.