Fitch Downgrades Kenya's Rating to B on Low Forex Reserves

Fitch Ratings has downgraded Kenya’s credit rating from ‘B+’ to ‘B’, attributing the action to the country’s growing debt and depleting foreign exchange reserves.

The company said Kenya faces extra strain on its foreign reserves driven by elevated external debt servicing obligations in the financial year 2023/24, including the maturity of the $2 billion (KES 245.82 billion) Eurobond in 2024 combined with high current account deficits.

Kenya is riddled with KES 8.7 trillion of both domestic and external debt, equivalent to 62 per cent of the country’s gross domestic product (GDP).

“The downgrade reflects Kenya’s persistent twin fiscal and external deficits, relatively high debt, and deteriorating external liquidity, and high external financing costs, which presently constrain access to international capital markets,” said Fitch.

Kenya’s debt servicing costs remain high, and the National Treasury will spend KES 1.393 trillion to service both principal and debt interest in the current financial year.

This is an increase from the KES 1.151 trillion debt servicing obligations that was spent to service debt in the previous financial year.

The payment consists of KES 690 billion in interest payment on the debt in addition to the KES 461.4 billion it will spend on redeeming internal debt and KES 241 billion in external debt redemption.

The debt burden has exerted a huge burden on the exchequer, forcing the Treasury to restructure part of its short-term domestic debt.

Fitch has however given Kenya a ‘stable’ outlook based on the country’s fiscal consolidation efforts driven by the International Monetary Fund (IMF), manageable near-term debt commitments and post-pandemic solid growth that is likely to continue over the medium term.

“Fitch expects Kenya’s growth to remain steady in 2023 and 2024 following strong post-pandemic growth recovery. Growth has been mixed this year, with drought lowering output in the agricultural sector during the early part of it and the August 2022 general election contributing to an expected slowdown in 3Q22. We forecast real GDP growth of 5.4per cent in 2022, down from 7.5per cent in 2021.”