Moody’s Upgrades Kenya After Eurobond Buybacks Cut Near-Term Default Risk

Moody’s Ratings has upgraded Kenya’s sovereign rating to B3 from Caa1 on January 27, citing a sharp fall in near-term default risk after stronger foreign-exchange reserves, successful Eurobond refinancing, and improved access to both external and domestic funding markets.

• •The upgrade covers Kenya’s local and foreign currency long-term issuer ratings and foreign currency senior unsecured debt, with the outlook revised to stable from positive, according to Moody's Ratings.
• •Moody’s said easing balance-of-payments pressure and improved funding flexibility have reduced immediate credit stress, though weak debt affordability and persistent fiscal deficits continue to constrain the rating.
• •The upgrade follows Fitch Ratings’ decision last week to affirm Kenya at B- with a stable outlook, highlighting broad agreement among agencies on near-term liquidity improvements while diverging on fiscal momentum.

Kenya Sovereign Rating History (Moody’s)

External liquidity has strengthened materially with foreign-exchange reserves rising to KSh 1.57 trillion (US$ 12.2 billion) at end-2025, equivalent to 5.3 months of import cover, from KSh 1.19 trillion (US$ 9.2 billion) a year earlier. The current account deficit narrowed to 1.3% of GDP in 2024 from 5.2% in 2021, supported by higher remittances, a stronger services surplus, and improved export performance.

Moody’s expects the deficit to widen toward about 3% of GDP, but said existing buffers are sufficient to manage near-term maturities. Around half of public debt remains foreign-currency denominated, leaving fiscal metrics exposed to exchange-rate movements.

Liability management has also eased refinancing risk with Moody’s noting that Kenya issued KSh 387.0 billion (US$ 3.0 billion) in Eurobonds in 2025 and used KSh 154.8 billion (US$ 1.2 billion) to buy back bonds maturing between 2026 and 2028, pushing the next large Eurobond maturity to 2030. Annual external amortizations of KSh 322–387 billion (US$ 2.5–3.0 billion) through the rest of the decade keep refinancing needs elevated, leaving the credit profile sensitive to shifts in investor sentiment.

Fitch estimated gross FX reserves at KSh 1.60 trillion (US$ 12.4 billion) at end-2025 and projected coverage of about four months of current external payments in 2026, despite a widening current account deficit.

Fitch also cited partial refinancing of the 2027 and 2028 Eurobonds and the conversion of some Chinese export-import bank debt into renminbi, generating savings of about 0.1% of GDP per year. Unlike Moody’s, Fitch stopped short of an upgrade, pointing to rising debt service and fiscal slippage. Government external debt service is projected at KSh 684.0 billion (US$ 5.3 billion) in FY26, equivalent to 3.7% of GDP, while interest costs are expected to remain above 30% of revenue, roughly double the B-rated peer median.

Domestic financing conditions have improved, supporting execution. Treasury bill yields fell below 8% in December 2025 from 9.9% a year earlier, while average new bond yields eased to about 13.5% in the first half of fiscal 2026. Fitch cautioned that heavier reliance on domestic borrowing will limit further yield declines, even with lower policy rates.

Moody’s expects fiscal deficits near 6% of GDP, with debt stabilising around the high-60% range of GDP. With election pressures approaching and debt affordability among the weakest in the rating category, sustained fiscal consolidation remains the decisive test for whether Kenya’s recent credit gains endure.