Moody's Investors Service ("Moody's") has today downgraded the issuer rating of the Government of Kenya to B2 from B1 and assigned a stable outlook. This concludes the review for downgrade that commenced on October 2, 2017.
The drivers of the downgrade relate to an erosion of fiscal metrics and rising liquidity risks that point to overall credit metrics consistent with a B2 rating. The fiscal outlook is weakening with a rise in debt levels and deterioration in debt affordability that Moody's expects to continue. In turn, large gross financing needs and reliance on commercial external debt will maintain government liquidity pressures. While the government aims to improve the efficiency of spending and revenues, such measures are unlikely to be effective enough to stem a weakening in fiscal trends.
At B2, risks are balanced, and supportive of a stable outlook. Kenya retains strong fundamental economic strengths with a relatively diversified economy that holds strong growth potential. Moreover, Kenya has a relatively deep capital market and mature financial sector, which affords the government some capacity to issue domestically in local currency and with longer tenors.
Concurrently, Moody's has lowered the long-term foreign-currency bond ceiling to Ba3 from Ba2 and the long-term foreign-currency deposit ceiling to B3 from B2. Moody's has also lowered the long-term local-currency bond and deposit ceilings to Ba2 from Ba1.
