Moody’s Ratings has upgraded Kenya’s long-term issuer ratings for both local and foreign currency debt to B3 from Caa1, while revising the outlook to stable from positive, citing improved liquidity conditions.
In a statement issued on January 27, 2026, the ratings agency said the upgrade was underpinned by stronger external buffers. Foreign exchange reserves have increased, the current account deficit has narrowed, and the shilling has shown greater stability. Moody’s also pointed to Kenya’s re-entry into international capital markets, noting that two Eurobond issues worth a combined USD 3 billion in 2025 helped ease short-term refinancing pressures.
The agency said the improved external position reflects higher reserves, a tighter current account gap and a steadier exchange rate. It added that access to global bond markets has reduced immediate repayment risks.
Moody’s also highlighted better conditions in the domestic financing market. Lower yields and strong investor appetite for government securities have strengthened the state’s ability to meet its funding needs locally, limiting dependence on foreign borrowing.
However, the agency cautioned that Kenya’s debt burden remains heavy. Weak debt affordability and persistently high fiscal deficits continue to constrain prospects for further rating upgrades.
Kenya’s Eurobond activity last year allowed the government to buy back USD 1.12 billion worth of bonds due between 2026 and 2028, smoothing the external repayment schedule and pushing the next major maturity to 2030. Moody’s expects the government to maintain a diversified financing strategy, combining concessional loans from multilateral and bilateral partners with market-based borrowing.
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While these steps have eased balance-of-payments pressures and improved funding flexibility, Moody’s warned that external liquidity remains vulnerable to exchange rate swings and shifts in global financial conditions. Annual external repayments of between USD 2.5 billion and USD 3.0 billion through the rest of the decade keep refinancing risks elevated.
On the domestic front, improved liquidity has supported government borrowing. Treasury bond auctions have continued to attract strong demand, while Treasury bill yields fell from 19.3% to below 18% in December 2025, helped by monetary easing and better transmission of liquidity.
Still, the agency noted that high interest costs, with debt servicing consuming about 40% of government revenue, and limited fiscal consolidation continue to weigh on debt sustainability. Moody’s projects the fiscal deficit to hover around 6% of GDP, with public debt broadly stable at roughly 67% of GDP.
