The African Union has faulted Moody’s latest revision of Kenya’s outlook from negative to positive, arguing that the change is an admission that the July 2024 downgrade was premature and incorrect.
- •The African Peer Review Mechanism (APRM) called out Moody’s for aggressively skipping from ‘negative’ to ‘positive’ without transitioning through a ‘stable’ outlook in an attempt to reverse its premature rating action in July 2024.
- •On Friday, Moody’s revised Kenya’s outlook to “positive” from “negative” citing a potential ease in liquidity risks and improving debt affordability over time.
- •The Global ratings agency further affirmed Kenya’s local and foreign-currency long-term issuer ratings at “Caal”, reflecting lingering elevated credit risks driven by very weak debt affordability and high gross financing needs relative to funding options.
“This rating action was a reversal of Moody’s premature rating action on 08 July 2024 which was largely driven by protests in Kenya over the proposed Finance Bill,” APRM noted in a statement on Monday.
The APRM termed the July 2024 rating downgrade by Moody’s as speculative since the final budget, the finance bill, and the new cabinet had not yet been released at the time of the announcement.
In 2023, Moody’s inaccurately downgraded Nigeria from ‘B3’ to ‘Caa1’ citing that the government’s fiscal and debt position was expected to deteriorate further under the new administration. Moody’a later reversed the outlook from ‘stable’ to ‘positive’ in December 2023, citing positive economic policy developments in the country proving premature and erred ratings.
“The APRM views such rating actions as irresponsible and detrimental. “The body added such erroneous ratings could lead to unnecessary costs to governments, triggering Eurobond sell-offs, and sustaining a negative sentiment on African instruments.
In the recent review, Moody’s noted that domestic borrowing costs were declining progressively since June 2024, owing to the monetary easing coupled with strong demand for bonds and the trend would continue if the government implemented fiscal consolidation to achieve small primary surpluses to gain better access to concessional financing and market funding.
The ratings agency added that a new International Monetary Fund program would enhance the country’s external financing with other multilateral creditors including the World Bank will remain significant sources of financing, even without IMF funding.
In August 2024, other credit rating agencies including S&P and Fitch also downgraded Kenya’s sovereign rating on account of heightened fiscal risks.
