Fitch downgrades Kenya’s credit status

Thursday July 20 2023
The Central Bank of Kenya

The Central Bank of Kenya. PHOTO | FILE \ NMG


Global rating agency Fitch has revised Kenya’s credit status to negative over the deteriorating macroeconomic conditions, implying that taxpayers will pay more for loans procured by the government from the international financial markets.

The agency, in a statement on Thursday, announced that it had revised the outlook on Kenya’s long-term foreign currency issuer default rating (IDR) to negative from stable, and affirmed the IDR at ‘B’.

The downgrade is largely due to the country’s increased external financing constraints amid huge funding requirements -- including a $2 billion Eurobond that is maturing in 2024-- weakening international reserves, rising financing costs and uncertainty regarding the fiscal trajectory due to the implementation risks of the announced tax hikes through the controversial Finance Act (2023) that has caused social unrest.

Read: Tear gas, arrests at Kenya protest over tax hike plans

“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,” said Fitch.

Fitch notes that Kenya’s sovereign external debt service will rise sharply to $4.3 billion in the 2023/2024 fiscal year -- including the $2 billion Eurobond repayment due in June 2024 -- up from $2.8 billion in the 2022/2023 fiscal year.


“Our expectation that the global tightening cycle could maintain unfavourable market conditions into 2024 is a significant headwind for the authorities who plan to refinance the Eurobond in external markets,” the agency said.

Fitch assumes that the government will meet its financing obligations in the current fiscal year through a combination of official lending, syndicated loans and a drawdown in reserves.

Read: Kenya secures loan to mitigate financing pressure

Kenya’s projected external financing in the 2023/2024 fiscal year includes about $1 billion in IMF disbursements, $1.9 billion in project loans from official creditors and continued use of syndicated loans.

In May this year, another rating agency Moody’s downgraded Kenya’s long-term foreign currency and local currency issuer ratings and senior unsecured debt ratings from B2 to B3 on rising liquidity risks.