Kenya was downgraded to B3 from B2 by Moody’s citing an increase in government liquidity risks. The rating agency said that domestic funding conditions have “deteriorated considerably”. With very low net domestic issuance adding to financing shortfalls alongside government spending delays, overall liquidity risk has risen. Moody’s notes that external debt amortizations will rise to $3.5bn (2.9% of GDP) in fiscal year 2024 vs. $1.6bn in 2023 (1.5% of GDP). This comes at a time when international reserves stand at only $6.5bn as of May, sufficient only for 3.6 months of import coverage. This compares to a coverage of over 5 months in early-2022. Moody’s expects Kenya’s interest-to-revenue ratio to peak at 28% in fiscal year 2023, implying that debt affordability will remain weak.
Kenya’s dollar bonds were trading stable with its 7.25% 2028s at 80 cents on the dollar.