Despite the improved outlook, Moody’s affirmed Kenya’s local and foreign-currency long-term issuer ratings at “Caa1,” reflecting elevated credit risks driven by weak debt affordability and high gross financing needs relative to funding options. In July last year, Moody’s downgraded Kenya’s debt rating further into junk territory, warning of a negative outlook following widespread protests led by the Gen Z generation. These protests forced the government to abandon proposed tax hikes, exacerbating fiscal challenges
Moody’s Ratings has upgraded Kenya’s economic outlook to “positive” from “negative,” citing reduced liquidity risks and improvements in debt affordability over time. The global ratings agency highlighted that Kenya’s low inflation and stable exchange rate could lead to further declines in domestic borrowing costs. This improvement stems from the effects of previous monetary policy rate cuts, which continue to lower long-term borrowing rates.
“Domestic financing costs have started to decline amid monetary easing and could continue to do so if the government sustains its more effective management of social demand and fiscal consolidation. Such a track record would also boost Kenya’s access to both concessional and commercial external funding,” Moody’s noted.
Moody’s also pointed out that a new International Monetary Fund (IMF) program would bolster Kenya’s external financing position. Multilateral lenders like the World Bank remain vital funding sources, even in the absence of IMF support.
“Revenue collection efforts, if successful, present the potential for further improvements in debt affordability, although Kenya has struggled to expand revenue significantly and durably in the past, notwithstanding recent measures,” the agency observed.
Despite the improved outlook, Moody’s affirmed Kenya’s local and foreign-currency long-term issuer ratings at “Caa1,” reflecting elevated credit risks driven by weak debt affordability and high gross financing needs relative to funding options.
In July last year, Moody’s downgraded Kenya’s debt rating further into junk territory, warning of a negative outlook following widespread protests led by the Gen Z generation. These protests forced the government to abandon proposed tax hikes, exacerbating fiscal challenges.
However, the government responded with a series of austerity measures that significantly cut spending across sectors. Kenya also secured a boost in October when the IMF approved nearly Sh80 billion under its four-year reforms program aimed at reducing reliance on expensive loans and boosting domestic revenue collection.
Moreover, the government reintroduced most tax measures from the previously rejected Finance Bill 2024 through the Tax Laws (Amendment) Act 2024, signalling its commitment to fiscal consolidation.
Moody’s acknowledged that if the government maintains this trajectory of reform, Kenya stands to benefit from improved access to external funding and enhanced debt sustainability.
