Kenya: On 25 August, S&P Global Ratings affirmed Kenya’s B/B long- and short-term foreign- and local-currency credit ratings while keeping the outlook negative.
The rating agency stated that the challenging conditions for international eurobond issuance, alongside pressure in Kenya’s domestic markets, continue to pose debt-refinancing challenges. However, an increase in foreign currency lending by donors in recent months is expected to provide Kenya with sufficient foreign exchange reserves to meet its commercial debt obligations in 2023 and 2024.
Meanwhile, despite the legal challenges, Kenya’s recent passage of its Finance Bill 2023 supports gradual fiscal consolidation and will reduce the government’s net domestic foreign borrowing requirements over time. According to S&P, the negative outlook is largely reflective of risks to Kenya’s external debt-servicing capacity due to constrained access to international capital markets. S&P also noted that it considers tightened liquidity in the domestic capital markets, partly fuelled by inflation and interest rate pressures.
If Kenya’s external refinancing pressures mount due to a sustained decline in foreign exchange reserves or if S&P views any potential debt-repurchase operations to be akin to a distressed exchange, the ratings could be lowered. Limited progress on fiscal consolidation would also lead to a lowering of ratings.
Meanwhile, the outlook could be revised to stable in the next six to twelve months if Kenya’s external and domestic financing pressures are contained, and S&P sees evidence of significant progress toward fiscal consolidation. (ETM)