Moody’s Upgrades Kenya’s Credit Rating as Default Risk Declines

By Benadeta Mwaura - Reporter

Kenya, 28 January 2026 - Global ratings agency Moody’s Investors Service has upgraded Kenya’s sovereign credit rating from Caa1 to B3 while revising the outlook to stable, citing a reduction in near-term default risk and improvements in external liquidity and market access.

The change, announced on 27 January 2026, signals a modest but meaningful increase in investor confidence in Kenya’s ability to manage its debt profile, even as significant fiscal challenges remain.

In its statement, Moody’s said the upgrade reflects a marked strengthening of Kenya’s external position, notably higher foreign-exchange reserves and a narrower current account deficit, which have collectively reduced the immediate risk of balance of payments stress.

By the end of 2025, Kenya’s foreign reserves stood at $12.2 billion, equivalent to about 5.3 months of import cover, up from $9.2 billion a year earlier, underscoring greater resilience to external shocks.

Moody’s also noted that Kenya’s return to international capital markets helped ease refinancing pressures on external debt.

In 2025, the government completed two Eurobond issuances totalling $3 billion, using part of the proceeds to buy back about $1.2 billion in bonds that were maturing between 2026 and 2028.

This effectively pushed Kenya’s next major external debt repayment to 2030, smoothing the country’s debt profile and easing immediate rollover risks.

Though the rating remains within the non-investment-grade category, a level that still reflects high credit risk, the move to B3 from Caa1 indicates that Moody’s views Kenya’s near-term risk of default as lower than before.

The stable outlook suggests Moody’s expects the recent improvements in external liquidity and financing flexibility to be maintained in the months ahead, despite ongoing structural fiscal pressures.

In practical terms, a higher sovereign credit rating can help lower borrowing costs on international markets and enhance investor confidence, particularly for long-term investments in infrastructure, energy and financial markets.

It can also improve Kenya’s access to international capital markets, making it easier for the government and Kenyan corporates to raise funds abroad at more favourable terms.

Several factors contributed to Moody’s assessment:

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Stronger Foreign Reserves: The increase in international reserves strengthened Kenya’s buffer against external shocks.

Narrower Current Account Deficit: Kenya’s current account deficit contracted to about 1.3 % of GDP in 2024, aided by stronger export receipts, higher diaspora remittances and a growing services surplus.

Stable Exchange Rate: Relative stability in the Kenyan shilling also helped reduce external vulnerabilities.

Debt Management Moves: Strategic debt operations, including Eurobond buy-backs, helped smooth maturity profiles and lower immediate refinancing needs.

Despite these positives, Moody’s emphasised that debt affordability remains weak, and progress on fiscal reforms has been limited.

Large budget deficits, projected near 6 % of GDP, and elevated interest costs keep Kenya’s credit profile sensitive to changes in global financing conditions, particularly if borrowing costs rise or revenue performance weakens.

Kenyan authorities have been actively pursuing measures to improve the country’s credit standing. In 2025, the National Treasury engaged rating agencies and implemented debt management strategies that aimed to strengthen balance-of-payments positions and reduce borrowing risks.

These efforts were part of broader fiscal reform plans to enhance transparency and attract foreign investment.

Analysts say sustaining and building on this upgrade will require continued fiscal consolidation, robust revenue mobilisation, and disciplined public spending, especially in the run-up to the 2027 general election. Maintaining investor confidence will be key to unlocking cheaper financing for infrastructure, job creation and long-term economic growth.