S&P Global Ratings has lowered Kenya’s credit rating to ‘B-‘ from ‘B’, citing withdrawal of the controversial Finance Bill 2024 after deadly protests, holding that it will slow the country’s fiscal consolidation.
- The downgrade follows subsequent downgrades from Moody’s and Fitch since July 2024, citing similar reasons.
- S&P projects debt-servicing costs to exceed 30 per cent of government revenue over 2024-2027, among the highest of all sovereigns they rate.
- The agency further noted that Kenya still has structurally high external debt and sizable financing needs notwithstanding its immediate external liquidity risks have eased.
The abandoned tax hikes contained in the Finance Bill 2024 were backed by the IMF, in a bid to restructure Kenya’s debt obligations.
“The downgrade reflects our view that Kenya’s medium-term fiscal and debt outlook will deteriorate following the government’s decision to rescind all tax measures proposed under the 2024/2025 Finance Bill,” S&P said in the Friday statement.
“Our ratings on Kenya remain constrained by the country’s relatively low GDP per capita (although still among the highest in the East African region), high fiscal deficits and government debt, and sizable external financing requirements,” S&P added, while maintaining that despite low wealth on a GDP per capita basis, Kenya’s economic growth has outpaced peers’ because of its relatively dynamic services-led private sector.
The outlook was however maintained at ‘stable’, stemming from expectations of strong economic growth and continued access to concessional external financing which will balance pressures from high interest costs, slower fiscal consolidation, and structural external imbalances.
Similarly, the global ratings firm affirmed Kenya’s short-term sovereign credit rating to ‘B’ and revised the transfer and convertibility assessment downwards to ‘B’ from ‘B+’.
With the IMF expected to meet in September to approve a US$600 million disbursement under Kenya’s seventh review, which expires in March 2025, S&P maintains Kenya’s reasonably strong access to concessional external financing.
Why It Matters
Sovereign credit ratings play an important role in determining a nation’s ability to meet its debt obligations.
Sovereign credit ratings, like personal credit scores for individuals, provide helpful information to lenders.
The credit ratings help investors gain insight into the level of risk associated with investing in a particular country. A good credit rating is essential, particularly for developing nations, as it gets them access to international bond markets.
Investors use credit ratings to determine which investments are less likely to default and yield a solid return. The ratings are based on several factors such as what kind of debt a country holds, domestic money supply and its sensitivity to systemic changes like interest rates.
Lower credit ratings typically translate into higher interest rates for borrowing for both the government and private firms. Investors might withdraw or decrease investments due to the increased risk with the strength of the currency being affected negatively.
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