Kenya’s Credit Rating Downgraded by Fitch
As a result of deteriorating macroeconomic conditions, the global rating agency Fitch has downgraded Kenya’s credit status to negative, implying that taxpayers will pay more for loans procured by the government from international financial markets.
The agency announced in a statement on Thursday that it had changed the outlook on Kenya’s long-term foreign currency issuer default rating (IDR) from stable to negative while maintaining the rating at ‘B’.
The downgrade is primarily attributable to the country’s increased external financing constraints in the face of enormous funding needs — including a $2 billion Eurobond maturing in 2024 — dwindling international reserves, rising financing costs, and fiscal uncertainty resulting from the implementation risks of announced tax hikes through the controversial Finance Act (2023), which has sparked social unrest.
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“The rating affirmation balances Kenya’s relatively high government debt and external indebtedness and its narrow revenue base against the authorities’ commitment to fiscal consolidation anchored by the International Monetary Fund (IMF) Programme and strong medium-term growth prospects,” explained Fitch.
Fitch notes that Kenya’s external debt service will increase significantly to $4.3 billion in the 2023/2024 fiscal year, including the $2 billion Eurobond repayment due in June 2024, compared to $2.8 billion in the 2022/2023 fiscal year.
“Our expectation that the global tightening cycle will maintain unfavorable market conditions through 2024 is a significant headwind for the authorities who intend to refinance the Eurobond on external markets,” the agency said.
Fitch assumes that the government will satisfy its current fiscal year financing obligations through a combination of official lending, syndicated loans, and a drawdown of reserves.
The projected external financing for Kenya during the 2023/2024 fiscal year consists of approximately $1 billion in IMF disbursements, $1.9 billion in project loans from official creditors, and the continued use of syndicated loans.
Moody’s downgraded Kenya’s long-term foreign currency and local currency issuer ratings and senior unsecured debt ratings from B2 to B3 in May of this year due to increasing liquidity risks.
Kenya’s Credit Rating Downgraded by Fitch