Global ratings agency Moody’s on Friday cut Kenya’s unsecured debt rating as well as long-term foreign-currency and local-currency issuer ratings to B3 from B2.
“The rating downgrade is driven by an increase in government liquidity risks,” the agency said.
The agency added that Kenya’s domestic funding conditions have deteriorated considerably over the past two months, with very low net domestic issuance contributing to financing shortfalls and delays in government spending.
Moody’s also said it had placed the latest ratings on review for downgrade, as external financing options for Kenya also remain constrained.
Without access to international bond markets to refinance upcoming external amortizations, Moody’s said it expects Kenya to rely primarily on concessional financing from multilateral financial institutions, along with commercial syndicated loans and borrowing from regional development banks, to meet its external financing needs.
The downgrade by Moody’s comes just two months after Global ratings agency Standard and Poor (S&P) cut Kenya’s ratings outlook from stable to negative.
According to S&P the decision to downgrade Kenya was made because of country’s debt servicing capacity due to constrained international market access and underperforming domestic bond issuances.
S&P has also pointed to the recent shrinkage of forex reserves and the inflationary effect a weakening shilling has on external debt and the cost to service the same.
“Constrained external financing led to Kenya suspending plans to tap international capital markets in 2022, prompting the country to draw more extensively on its forex reserves to meet its external debt repayments,” S&P said in its ratings update.
“Our base-case scenario assumes that Kenya will meet its financing requirements for fiscal 2023 (year ending June 30), but risks remain given relatively high foreign debt service obligations in fiscal 2024 (including a $2 billion Eurobond maturing in June 2024) against a backdrop of still-difficult issuance conditions.”
Kenya’s dollar reserves, from which external debt is repaid, are currently at a near 10-year low of $6.9 billion, having fallen below the required four-months import cover a month ago.
“We could also lower the ratings if we perceived Kenya’s economic growth prospects or fiscal metrics had weakened significantly relative to historical norms,” the agency said.
