Moody's upgraded credit rating: What it means for Ruto

President William Ruto during the issuance of NYOTA grants to youths at Kinoru stadium. [Phares Mutembei, Standard]

Global ratings agency Moody's upgraded Kenya's sovereign credit rating on Tuesday, delivering a second boost in days for President William Ruto's cash-strapped administration and improving its prospects for accessing cheaper international credit. 

Moody's lifted Kenya's long-term foreign currency issuer rating to "B3" from "Caa1," citing a reduction in the near-term risk of default.

The agency revised the outlook to "stable" from "positive," reflecting expectations that recent improvements in external liquidity and financing conditions will be sustained. 

The move follows a similar vote of confidence from Fitch Ratings last Friday, which affirmed Kenya at 'B-' with a stable outlook.

The back-to-back favourable assessments from two major agencies will likely ease investor concerns and could lower borrowing costs for the Ruto government, burdened by high debt repayments and seeking new financing for infrastructure and development. 

"The near-term risk of default has eased," Moody's said in a statement, attributing the upgrade to an improved external liquidity position supported by higher foreign-exchange reserves, a narrower current account deficit, and a more stable shilling. 

The agency highlighted that Kenya's gross foreign exchange reserves rose to $12.2 billion (Sh1.573 trillion) at the end of 2025, providing 5.3 months of import cover, up from $9.2 billion (Sh1.187 trillion) a year earlier.

The current account deficit narrowed sharply to 1.3 per cent of GDP in 2024 from 5.2 per cent in 2021. 

Kenya's successful return to international capital markets last year with two Eurobond issuances totalling $3.0 billion (Sh387 billion), partly used to buy back debt maturing before 2030, was also cited as a key factor extending the country's debt maturity profile. 

"These developments have substantially reduced external refinancing risks over the next few years," Moody's noted. 

Despite the upgrade, the agency warned that Kenya's rating remains constrained by "weak debt affordability and slow fiscal consolidation." It expects high domestic borrowing costs and political pressures ahead of the 2027 election to limit efforts to narrow the fiscal deficit, which is forecast to remain near 6 per cent of GDP. 

"Heavy reliance on domestic borrowing supports near-term financing capacity, but high domestic interest rates will keep the interest costs elevated," Moody's stated. 

The focus now shifts to the remaining major global ratings agency, S&P Global Ratings, for its assessment. The National Treasury had previously warned that downgrades from ratings agencies could "torpedo" the economy by increasing borrowing costs and limiting financing access. 

The Ruto government  is concurrently negotiating with the International Monetary Fund (IMF) for a new loan programme, with discussions set to resume next month. The IMF has indicated that progress on governance and anti-corruption reforms will be central to a new deal. 

Tuesday's upgrade provides crucial breathing room for Ruto's government as it balances large domestic borrowing requirements—projected at Sh906 billion for the next financial year—with the need to maintain market confidence and control soaring debt servicing costs.