Kenya’s quest to tap into the international markets for financing has suffered a blow after ratings agency Moody’s downgraded the country’s foreign currency issuer ratings from B2 to B3.
This means that Kenya is now classified as “high credit risk” and just one level above “very high credit risk”.
In its statement, Moody’s cited rising liquidity risk for the government as the reason for the downgrade.
“The ratings downgrade is driven by an increase in government liquidity risks. Domestic funding conditions have deteriorated considerably over the past two months with very low net domestic issuance contributing to financing shortfalls,” Moody’s said.
The government has in the recent past been grappling with significant under-subscription of bond issuances with the 15-year bond auction having been cancelled mid-April owing to low appetite from investors.
According to the latest data from the National Treasury, receipts from domestic borrowing closed at Sh406.6 billion in April against the full financial year (ending June) target of Sh886.5 billion.
This means that with only two months to close the current financial year, domestic borrowing has fallen behind the target.
The downgrade by Moody’s comes a little under a month after the Treasury invited expressions of Interest from global banks to underwrite the country’s next Eurobond it plans to issue in the 2023/24 financial year.
Global markets have been shut for Kenya and other frontier markets in the recent past with the government having been forced to shelve the issuance of the sovereign bond that had been planned for the current financial year owing to high yields.
Rating downgrades are watched closely by global investors and viewed as unfavourable signals of a country’s position.