The outlook on Kenya’s long-term foreign currency Issuer Default Rating (IDR) has been changed by Fitch Ratings from stable to negative, and the IDR has been confirmed at “B.”
According to Fitch, the change in Kenya’s outlook to negative reflects increased external financing challenges amid high funding requirements, including a US dollars2 billion (Ksh283.6 billion) Eurobond maturity in 2024, declining international reserves, rising financing costs, and uncertainty regarding the fiscal trajectory, for instance because of execution risks of the announced tax increases amid social unrest.
The rating confirmation weighs Kenya’s relatively large government debt, high foreign debt, limited income base, and government’s commitment to fiscal discipline, which is supported by the IMF program, against the country’s good medium-term growth prospects.
The Kenya Kwanza administration is under increased social pressure, according to the Rating Agency, even though political risks related to the August 2022 general election have decreased.
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These pressures include occasional demonstrations led by former presidential candidate Raila Odinga over his allegations of election rigging and legal challenges brought by civil society organizations against government tax increases.
Earlier this year, Standard and Poor (S&P), a global rating agency had also cut the country’s outlook from stable to negative.
The cut highlighted concerns about developing nations with high exposure to external debt finding it difficult to refinance maturing issuance caused by inflated interest rates demands by potential lenders.
Last year, Kenya had to postpone a Eurobond issuance due to the refinancing risk. This led to increased pressure on the domestic market which was burdened with budget deficit financing.
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A negative CreditWatch on a country means that its outlook may be lowered and that its ability to repay is deteriorating. Additionally, the country will have to pay higher interest rates when borrowing in future.
