Moody’s, the global ratings agency, upgraded Kenya’s outlook from “negative” to “positive” on Friday, highlighting a potential reduction in liquidity risks and an improvement in debt affordability over time.
The East African nation has faced significant debt challenges and has been seeking new financing avenues since last year, largely due to widespread protests against proposed tax hikes.
As domestic financing costs begin to decrease amid a cycle of monetary easing, this trend could persist if the Kenyan government successfully navigates its fiscal consolidation, thereby creating opportunities for external funding, according to the report.
Moody’s noted that with low inflation and a stable exchange rate, there is room for further decreases in domestic borrowing costs as previous cuts in monetary policy rates translate into lower long-term borrowing expenses.
Additionally, the agency pointed out that a new program from the International Monetary Fund would bolster Kenya’s external financing, while other multilateral lenders like the World Bank will remain crucial sources of funding, even in the absence of IMF support.
Despite the positive outlook, Moody’s maintained Kenya’s long-term issuer ratings in both local and foreign currency at “Caa1,” citing ongoing high credit risks due to weak debt affordability and substantial gross financing needs compared to available funding options.
