Moody’s Confirms Kenya’s B3 Ratings, Outlook Changes to Negative
Moody’s Investors Service has confirmed the Government of Kenya’s B3 long-term foreign-currency and local-currency issuer ratings and senior unsecured debt ratings, concluding the review for downgrade that was initiated on 12 May 2023.
The outlook is negative, according to the rating note. Moody’s said the confirmation of the rating at B3 reflects Moody’s assessment that intense liquidity pressures experienced in March and April 2023 have eased.
The improvement in domestic financing conditions has coincided with an increase in funding costs but preserves the government’s external funding options to meet its large external debt refinancing needs. It said the government’s commitment to fiscal reforms under its IMF program has unlocked significant concessional financing from multilateral lenders.
“This funding will help the government meet its external refinancing needs in the fiscal year ending 30 June 2024 (the fiscal year 2024), including the $2 billion eurobond due in June 2024”, the rating note added.
Also, Moody’s said the negative outlook reflects the balance of risks remains on the downside. These downside risks relate primarily to liquidity risk and elevated refinancing needs against limited external financing options and reliance on expensive domestic financing of the fiscal deficit.
It said Kenyan government will face substantial external amortizations even after the 2024 Eurobond maturity, in addition to the ongoing material deficit. As a result, the sovereign’s credit standing critically depends on its ability to finance its fiscal deficit through domestic funding sources and to continue to deliver on reform progress and maintain access to IMF and multilateral funding.
Kenya’s local and foreign currency ceilings remain unchanged at Ba3 and B1, respectively, the rating note said. The three-notch gap between the local currency ceiling and the sovereign rating is driven by relatively weak institutions and policy predictability and moderate political risk set against a relatively small footprint of the government in the economy and limited external imbalances.