Time flies with great content! Renew in to keep enjoying all our premium content.
Prime
Higher taxes key to Kenya’s ratings upgrade
The requirement for greater tax revenues to lift the credit ratings may prove challenging as Kenya’s window to raise collections from higher tax rates closes following last year’s deadly street protests against the Finance Bill 2024.
Kenya will be required to substantially improve its collection of taxes to raise its credit score, global ratings agencies have said.
The country’s ratings from all three major agencies sit in the non-investment grade category at B- for Fitch, Caa1 for Moody’s and B for Standard and Poors (S&P).
President William Ruto and Treasury Cabinet Secretary John Mbadi have insisted that Kenya deserves a stronger credit rating from the agencies based on improved macroeconomic factors over recent months.
Moody’s Investors Service highlights revenue growth and contained spending as key drivers to improved ratings for lower-income economies like Kenya, while noting that countries in the peer group can earn higher ratings despite their income status.
“Fiscal consolidation, or the expectation of reforms that can improve fiscal outturns, is frequently cited as a key ratings driver for sovereign upgrades, especially for governments with sub-investment grade ratings,” Moody’s notes.
“Upgrades to the Philippines’ ratings beginning in 2009 were driven by rapid economic expansion, accompanied by improved fiscal management and underpinned by strong revenue growth. We also upgraded Honduras twice on the back of material fiscal consolidation through both revenue increases and expenditure containment.”
The requirement for greater tax revenues to lift the credit ratings may, however, prove challenging as Kenya’s window to raise collections from higher tax rates closes following last year’s deadly street protests against the Finance Bill 2024.
Revenues as a percentage of gross domestic product (GDP) have remained largely flat at 16.8 percent as of June 2025, despite prior years of aggressive tax measures signalling difficulties in revenue mobilisation.
The government is, however, banking on a new Medium Term Revenue Strategy to lift the ratio of revenues to 20 percent of GDP by June 2027 by mainly expanding the tax base into hard-to-tax sectors.
This will include reviewing and exploring means of suitable taxation of the informal sector, reviewing the taxation of the digital sector and exploring means of suitable taxation of the agriculture sector, according to the Treasury.
Total revenue for the fiscal year to June 2025 stood at Sh2.92 trillion against a target of Sh2.98 trillion and translated to 16.8 per cent of GDP against a target of 17.1 percent.
Ordinary revenue or taxes underperformed the Sh2.49 trillion target by Sh76 billion to stand at Sh2.42 trillion as income taxes and excise duty heads underperformed.
Mr Mbadi has, however, highlighted Kenya’s efforts in strengthening debt management and fiscal discipline as the government’s premise for a ratings upgrade.
Kenya is seeking to form a Credit Rating Committee to handle the country’s interactions with international ratings agencies.
“The upgrade in Kenya’s credit rating demonstrates the tangible benefits of fairer assessments. It allows us to redirect scarce resources from debt servicing into critical priorities such as infrastructure, agriculture and climate resilience,” said Mr Mbadi at a conference earlier this month.
S&P Global Ratings, which raised its long-term sovereign credit rating on Kenya to B from B- in August, said it would consider raising the score further if the country can cut its fiscal deficit further, an outcome achieved by either raising revenues or containing expenditures.
“We could raise the ratings if we observe a steady commitment to sustainable public finances as demonstrated by a significant reduction in fiscal deficits and interest costs beyond our base-case forecast,” the agency said.
Kenya’s rating would be required to fall between Aaa and Baa3 to rank as an investment-grade issuer, which would imply a lower default risk perception among investors which ultimately hands the country lower borrowing costs.
Moody’s offers a broad range of other structural reforms to drive improvements in credit quality, including improving the business climate, measures to increase savings and banks’ lending practices and a greater focus on price stability/inflation targeting.
Ratings changes between low and lower-middle-income countries reveal that sovereigns can move downwards and upwards on the ratings scale.
Countries to move up the ratings scale between 2006 and 2022 have included China, Peru, Colombia, Indonesia, Paraguay and the Philippines.
Others like Egypt, Pakistan, Tunisia, El Salvador and Suriname have meanwhile moved downwards in ratings.
