Fitch Ratings has affirmed Kenya’s credit rating at “B-” with a Stable Outlook due to positive growth potential and monetary policy improvements. However, high debt, governance weaknesses, and revenue collection issues remain significant challenges. Moody’s recently upgraded Kenya’s outlook, while S&P Global is expected to report soon. Fitch projects an expanding fiscal deficit, cautioning about liquidity and funding uncertainties ahead.
Fitch Ratings has upheld Kenya’s sovereign credit rating at “B-” with a Stable Outlook, indicating robust growth potential and enhanced monetary policy measures. Despite this stability, challenges persist due to elevated debt costs, inadequate governance, and a vast informal economy, which impede government revenue generation. The agency highlighted ongoing fiscal consolidation difficulties, as Kenya grapples with high external debt levels and persistent budget deficits.
Last week, Moody’s upgraded Kenya’s outlook from “negative” to “positive” based on improving liquidity conditions and debt affordability, whereas S&P Global is set to release a ratings update on February 21, 2025. Fitch’s report stressed that the Stable Outlook reflects a belief that strong backing from official creditors will help alleviate immediate liquidity issues, despite the sovereign’s significant and increasing funding requirements.
Fitch previously downgraded Kenya from ‘B’ to ‘B-‘ in August 2024, following a prior drop from ‘B+’ to ‘B’ in June 2022. The agency expressed concerns regarding the uncertainty surrounding the expiration of the US$3.6 billion IMF programme in April 2025, suggesting negotiations likely would lead to new funding arrangements, although the timeline remains unpredictable.
Fitch projects a significant widening of the fiscal deficit to 4.8% of GDP for the fiscal year 2025, exceeding both initial and revised government targets. It anticipates continued creditor support as essential to mitigating short-term external liquidity pressures. The successful issuance of a Eurobond in February 2024, alongside a buyback of a US$2 billion Eurobond due in June 2024, helped alleviate some liquidity concerns.
Fitch noted the stable currency, bolstered by strong disbursements and remittances, has alleviated the external debt servicing burden, given that 55% of Kenya’s debt is in foreign currency. The agency also warned of potential revenue shortfalls stemming from ongoing weaknesses in public financial management, which could adversely impact fiscal performance.
A “B-” rating categorizes Kenya’s creditworthiness as highly speculative, indicating limited safety margins, and highlights the material risks of default should the economic environment significantly deteriorate.
Fitch Ratings is a global credit ratings agency that assesses the creditworthiness of countries and corporations. Kenya’s sovereign credit rating reflects its economic stability and growth potential, while also highlighting existing challenges. Understanding the dynamics of Kenya’s fiscal policies, debt levels, and governance is crucial to interpreting its current ratings. These factors influence not only Kenya’s international relationships but also its ability to secure funding from various creditors.
In conclusion, while Fitch Ratings maintains a Stable Outlook on Kenya’s sovereign credit rating, significant economic challenges remain, including high debt levels and governance issues. Continued external support and prudent fiscal management are essential to address these challenges and stabilize the economy. The shifts in ratings by Moody’s and forthcoming assessments from S&P Global further emphasize the delicate balance Kenya must navigate to ensure sustainable economic growth.
Original Source: kenyanwallstreet.com