Fitch Affirms Kenya at ‘B-‘ with Stable Outlook
Fitch Ratings has affirmed Kenya’s Long-Term Foreign-Currency (LTFC) Issuer Default Rating (IDR) at ‘B-‘ with a stable outlook.
The affirmation reflects Kenya’s strong medium-term growth prospects, a diversified economy relative to peers and the build-up of official reserves, the global ratings agency said.
Fitch highlighted that these strengths are balanced against weak governance indicators relative to peers, including risks to social stability and public security, high debt servicing costs and fiscal consolidation constrained by a high level of informality and political and social challenges.
Stronger foreign-exchange (FX) reserves reduce external financing risks, but fiscal policy is hampering prospects for multilateral financing. The government’s liability management operations have helped reduce near-term external liquidity risk, but the external debt service burden remains high.
Kenyan’s external liquidity pressures have moderated, according to Fitch, reflecting the government’s proactive liability management and the build-up of FX reserves.
The authorities partly refinanced the 2028 USD1 billion Eurobond in October 2025 and the 2027 USD0.9 billion Eurobond in February 2025.
They also converted part of the US dollar debt owed to Export-Import Bank of China into renminbi-denominated liabilities and renegotiated the terms, saving around 0.1% of GDP per year.
Fitch estimates that gross FX reserves rose to USD12.4 billion at end-2025 on higher portfolio inflows and official loans, strong exports, tourism and remittance inflows and recent central bank FX purchases.
“We project the current account deficit will widen further in 2026 to 2.6% of GDP, from an estimated 2.3% in 2025, driven by higher imports and external interest costs”.
Together with modest capital inflows, this underpins our forecast that FX reserves will cover four months of current external payments in 2026.
Government external debt service -amortisation plus interest – after the buybacks of Eurobonds is expected to rise in the financial year ending June 2026 (FY26) to USD5.3 billion (3.7% of GDP), from about USD5 billion in FY25, before moderating to USD4.5 billion (2.9% of GDP) in FY27.
Government external debt service will rise back, above USD5 billion in FY28-FY30, keeping gross external financing needs high.
“We forecast a FY26 deficit of 5.8% of GDP, above the budget target of 4.7% of GDP and the projected ‘B’ median of 3.5%, following a slippage of 2.6pp above the initial budget target in FY25.
“In 1HFY26, we estimate that total expenditure exceeded target by 0.6% of projected FY26 GDP. Fitch expects fiscal consolidation efforts to be hampered by rising spending commitments, especially interest payments, drought-related expenses, and higher social and security-related expenses ahead of the 2027 elections.
“In our view, the risk of renewed social unrest will also present challenges to fiscal consolidation.”
Fitch expects revenue shortfalls in FY26, consistent with Kenya’s record of underperformance and structural weaknesses in public financial management, including the government’s limited capacity to raise taxes.
“We project total revenue at 17.2% of GDP, 0.2pp below the government’s 17.4% target and below ‘B’ rated peers of 18.7%. Underperformance in revenue collection continued in 1HFY26, which we estimate was below target by 0.9% of projected FY26 GDP”.
Fitch analysts assume the deficit will be financed through a mix of domestic and external borrowing, with greater reliance on domestic sources, which may slow the decline in yields despite our expectation of lower policy rates.
The government plans to secure nearly USD6 billion (4% of GDP) externally through a mix of official and commercial borrowing, about one-third of which is expected in concessional loans, specifically from the World Bank and the African Development Bank.
Fitch does not expect an IMF programme in FY26. Uncertainty over meeting reform criteria under the World Bank’s Development Policy Operation programme could delay these disbursements. In the absence of this, Fitch expects greater reliance on commercial borrowing.
Analysts expect the interest/revenue ratio will moderate in FY26-F27, after peaking at 33.8% in FY25, but that it will remain high at over 30% (around double the ‘B’ median of 16%), due to increased reliance on domestic and commercial borrowing.
Fitch forecasts general government debt/GDP – including the securitisation of fuel levy amounting to 0.8% of GDP- will slightly decline to 68.6% by FY27, on stronger nominal GDP growth, but remain above the projected ‘B’ median of 54.7%.
“We estimate that the share of foreign-currency-denominated general government debt fell to 46% at the end of FY25, moderately reducing exchange-rate risk, although greater reliance on domestic funding will keep the interest burden high”. Oil Prices Edge Higher WoW on Geopolitical Tensions
