Fitch Ratings has affirmed Kenya’s long-term foreign-currency issuer default rating at ‘B-’ with a stable outlook, citing persistent fiscal and debt risks despite recent improvements in economic growth and external liquidity.
- •The rating agency flagged ongoing challenges, including high public debt, widening budget deficits, and continued underperformance in government revenue collection.
- •It has noted that while Kenya has strengthened its external buffers—raising FX reserves to $11.1 billion at end-June 2025 and easing liquidity pressures after settling the 2024 Eurobond—its reserve coverage remains below peer averages.
- •Fitch also highlights weak governance indicators and persistent challenges in political stability and corruption as negative factors weighing on Kenya’s credit profile.
Key Drivers:
- •Debt Burden Remains Elevated:
Kenya’s public debt stood at 66% of GDP in FY25, with Fitch forecasting only a modest decline to 64% by end-FY26. Interest payments are expected to absorb a third of government revenue, more than double the median for ‘B’ rated peers. - •Persistent Fiscal Slippage:
Fitch projects the FY25 budget deficit at 5.8% of GDP—2.5 percentage points above the government’s initial target. The FY26 deficit has also been forecast at 5.2%, with spending rigidities and high debt servicing costs seen as major constraints. - •Revenue Underperformance:
Total revenue is forecast to reach just 17.2% of GDP in FY26, below both government targets and peer medians. Fitch notes that the new Finance Act 2025 will not materially boost revenues, as it avoids new taxes amid strong public opposition. - •External Risks and Uncertainty Over Multilateral Support:
While external liquidity has improved, the cancellation of Kenya’s IMF arrangement and uncertainty over World Bank disbursements have increased risks. Fitch expects the government to rely more on domestic borrowing, which could push up local interest rates. - •Growth Outlook:
Fitch projects GDP growth to accelerate to 4.9% in 2025, supported by recovering private sector activity and stable inflation within CBK’s target range, following recent interest rate cuts.
The agency warns that further fiscal slippage, a sharp decline in FX reserves, or renewed external financing pressures could trigger a downgrade. Conversely, a clear reduction in debt and interest costs or a sustainable boost in reserves could lead to an upgrade.
