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Moody’s Places Kenya’s Government Ratings on Review for Downgrade

Business ReporterbyBusiness Reporter
May 15, 2023
in Kenyan News, Public Policy
Reading Time: 2 mins read
Nairobi - IMF

New York credit ratings agency Moody’s Investors Service has downgraded Kenya’s long-term foreign-currency and local-currency issuer ratings to B3 and placed them on review for further downgrade. The agency said the downgrade is due to increased liquidity risks faced by the Kenyan government. The country’s domestic funding conditions have worsened, leading to financing shortfalls and delays in government spending. Moody’s also lowered Kenya’s local currency and foreign currency country ceilings.

The deterioration in domestic financing conditions is a major factor in the downgrade. There has been weaker demand for government securities, particularly for longer-dated bonds. This has caused the government to fall behind its net domestic financing target, impacting its fiscal accounts and leading to delays in payments and the accumulation of arrears. The government’s ability to raise funds domestically is crucial, as it aims to meet most of its financing needs through domestic issuance.

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Additionally, “Kenya is facing increased external refinancing needs, with a significant increase in external debt payments in the coming years. The country’s international reserves have decreased, making it more challenging to cover imports. While Kenya has access to financing from the IMF and other multilateral institutions, its ability to maintain market access for commercial external debt is crucial for debt servicing.”

To address these challenges, the government has implemented measures to improve revenue collection and control spending. However, debt affordability remains weak, with a high interest-to-revenue ratio. Moody’s expects Kenya’s interest-to-revenue ratio to remain elevated even as the debt burden stabilizes.

ALSO READ; Moody’s Upgrades Kenya’s Banking Sector Outlook to Stable


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