Moody’s revises Kenya’s rating to positive

Kenya has recently received positive news from global ratings agency Moody's, which revised the country's outlook from negative to positive. This development comes as a relief for Kenya, which has been grappling with heavy debt and exploring new financing avenues following nationwide protests against proposed tax increases that ultimately led to the scrapping of the finance bill of 2024. CNBC Africa's Flora Limukii engaged in a conversation with Churchill Ogutu, an Economist at IC Asset Managers, to delve deeper into the implications of Moody's revised outlook. According to Ogutu, since Moody's last credit action, there have been notable improvements in two key areas. Firstly, the debt affordability risk has decreased significantly, with Kenyan T-bills showing an average reduction of around six percentage points since October last year. Additionally, the global easing cycle has resulted in a favorable environment for commercial borrowing, potentially lowering costs for the Kenyan government. On the liquidity front, domestic borrowing has been robust, leading to increased liquidity levels in the banking sector. Moreover, authorities are exploring external financing sources such as PandaBonds, SamuraiBonds, DebtForSwap, and a $1.5 billion loan from the United Arab Emirates, further improving liquidity conditions. The positive outlook from Moody's signals the potential for an upgrade in Kenya's credit rating, with expectations of an improvement from CAA1 to B- in the next two years. This positive shift reflects the country's progress in addressing liquidity risks and debt affordability concerns. Looking ahead, the economic landscape in Kenya remains mixed. While the reduction in central bank rates and stability of the shilling provide some relief, challenges persist, such as sluggish private sector credit growth and subpar economic performance. Addressing these structural issues will be crucial in supporting the economy and enhancing debt affordability. As Kenya considers external borrowing and explores sustainable investments to drive domestic revenue generation in 2025, attention is also drawn to the evolving dynamics with the new U.S. administration. Despite potential changes in aid and lending dynamics, bilateral lending with the U.S. is minimal compared to other partners like China. The focus remains on fostering trade and investment partnerships, with ongoing initiatives indicating continued collaboration between Kenya and the U.S. Additionally, efforts to promote green economy initiatives and revenue mobilization through mechanisms like DebtFor-Swap agreements are underway to enhance financial sustainability and drive economic development. In navigating the evolving financial landscape, Kenya appears to be positioning itself strategically to leverage opportunities for growth and stability in the coming years.