Global credit ratings agency Fitch Ratings has maintained Kenya’s sovereign rating at “B-” with a Stable Outlook, citing solid growth prospects and a stronger monetary policy.
- •However, the rating remains constrained by high debt costs, weak governance and a large informal sector that limits government revenue collection.
- •Despite increased efforts to narrow the budget deficit, Kenya continues to face high external debt levels and fiscal consolidation challenges.
- •Last week, rival ratings agency Moody’s revised Kenya’s outlook to “positive” from “negative” citing a potential ease in liquidity risks and improving debt affordability over time while S&P global will give a ratings report on 21st February 2025.
“The Stable Outlook reflects Fitch’s expectation that continued strong official creditor support will help alleviate near-term external liquidity pressures, although the sovereign’s funding needs will remain large and are expected to rise,” Fitch noted in the report.
The ratings agency downgraded Kenya’s ranking from ‘B’ to ‘B-‘ in August 2024, the first such change since the previous downgrade from ‘B+’ to ‘B’ in June 2022. The lapse of the US$3.6 billion IMF programme in April 2025, Fitch now says, introduces uncertainty over subsequent financing flows. “Fitch anticipates that negotiations will lead to a new funding arrangement, but the timeline is uncertain,” the ratings agency added.
The American ratings firm anticipates a widening of the fiscal deficit to 4.8% of GDP in the financial year 2025, 1.5 percentage points higher than the government’s initial budget target and 0.4 percentage points above its revised target.
Sovereign funding needs are expected to rise with Fitch expecting continued strong official creditor support to help ease near-term external liquidity pressures. The February 2024 Eurobond issuance and buyback of US$1.44 billion of a US$2 billion Eurobond that was set to mature on 24th June 2024 helped ease liquidity pressures.
The stronger currency supported by strong official disbursements and remittances moderated the external debt servicing burden given that about 55% of Kenya’s debt is foreign-currency denominated.
Further, Fitch expects revenue shortfalls owing to the consistent underperformance and gaps in the public financial management.
A B rating is highly speculative, which means that there is a limited margin of safety but material default risks due to any significant deteroriation in the business and economic environment remain.
