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Global credit rating firm Fitch has downgraded Kenya’s rating from stable to negative, citing concerns over the country’s elevated debt repayment obligations.
In its announcement on Thursday, Fitch revised the Outlook on Kenya’s long-term foreign-currency Issuer Default Rating (IDR) to negative from stable, while affirming the IDR at ‘B’.
The downgrade comes as a result of increased external financing constraints due to high funding requirements, including a $2 billion (Sh283.6 billion) Eurobond maturity in 2024, as well as weakening international reserves, rising financing costs, and uncertainties surrounding the fiscal trajectory.
Fitch stated in a statement, “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 IMF programme and strong medium-term growth prospects.”
The agency also projects a steep rise in the cost of servicing external debt (amortization and interest) to $4.3 billion (Sh609.74 billion) in the financial year ending June 2024.
“The expectation that the global tightening cycle could maintain unfavourable market conditions into 2024 is a significant challenge for the authorities, who plan to refinance the Eurobond in external markets,” Fitch added.
Additionally, Fitch anticipates a decline in Kenya’s reserves to $7 billion (Sh992.6 billion) by the end of 2024, down from $8 billion (Sh1.1 trillion) at the end of 2022, bringing the reserve to an equivalent of 2.8 months of current external payments, below the projected ‘B’ median of 3.4 months.
The country’s coalition government also faces mounting social pressures, including intermittent protests led by former presidential candidate Raila Odinga over allegations of election-rigging, and legal challenges by civil society groups against government tax increases.
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