Moody’s Ratings has upgraded Kenya’s local and foreign currency long-term issuer ratings to B3 from Caa1 and revised the outlook to stable from positive, citing a significant reduction in the country’s near-term default risk and improved external liquidity.

In a statement issued in New York on January 27, 2026, the global ratings agency said the upgrade reflects “stronger external liquidity, improved market access and better domestic financing conditions,” which have eased balance-of-payments pressures and reduced refinancing risks.

“The upgrade to B3 reflects our view that Kenya’s near-term default risk has declined,” Moody’s said, noting that foreign-exchange reserves rose to $12.2 billion at the end of 2025, equivalent to 5.3 months of import cover, up from $9.2 billion a year earlier.

The agency added that a narrower current account deficit, a more stable exchange rate and higher foreign-exchange inflows have “increased funding flexibility and eased external liquidity pressures.”

Kenya’s return to international bond markets in 2025, including two Eurobond issuances totalling $3 billion, was also highlighted as a key factor, with proceeds used to buy back $1.2 billion in bonds maturing between 2026 and 2028, effectively pushing the next major maturity to 2030.

Moody’s said these liability-management operations have “smoothed the external maturity profile and reduced near-term refinancing risks,” although it cautioned that Kenya still faces sizeable external amortisations of between $2.5 billion and $3 billion annually for the rest of the decade.

“Sustaining market access at affordable yields will depend on continued macroeconomic stability, progress on fiscal consolidation and consistent policy implementation,” the agency said.

The ratings firm also pointed to improved domestic financing conditions, noting that lower borrowing costs and strong demand for government securities have strengthened the government’s ability to fund large fiscal needs locally.

“Bond auctions have remained oversubscribed through fiscal 2026, even as domestic issuance has increased,” Moody’s said, adding that Treasury bill yields fell to below 8 per cent in December 2025, from 9.9 per cent a year earlier, while average interest rates on new Treasury bonds declined to around 13.5 per cent.

Despite the upgrade, Moody’s cautioned that Kenya’s credit profile remains constrained by weak debt affordability and limited progress on fiscal consolidation. The agency expects the fiscal deficit to remain close to 6 per cent of GDP, with debt broadly stable at around 67 per cent of GDP, warning that interest payments already consume more than 30 per cent of government revenue.

“Large and persistent financing needs and a high domestic funding share will continue to constrain affordability,” it said.

The stable outlook, Moody’s explained, reflects expectations that recent gains in liquidity and financing flexibility will be sustained, with risks broadly balanced. On the upside, the agency said stronger economic growth or effective fiscal reforms could improve debt dynamics, noting the National Treasury’s ambition to reduce the deficit toward 3 per cent of GDP by 2030. On the downside, it warned that revenue shortfalls, higher spending or rising borrowing costs could widen deficits and weaken debt affordability.

Moody’s also flagged environmental, social and governance risks as weighing on Kenya’s rating. It cited exposure to climate shocks affecting agriculture, high poverty and unemployment levels, and governance challenges, including corruption and weak fiscal policy effectiveness. Nonetheless, the agency acknowledged Kenya’s relatively large and diversified economy, with GDP per capita (PPP) of $7,160, real GDP growth of 4.7 per cent in 2024, and inflation of 3 per cent, as providing some capacity to absorb shocks.

The upgrade marks a notable vote of confidence in Kenya’s recent macroeconomic management, even as the government faces the challenge of sustaining reforms, improving revenue performance and managing debt costs ahead of the 2027 election cycle.

What this means for Kenyans

Moody’s upgrade of Kenya’s credit rating from Caa1 to B3, with a stable outlook, signals that the country’s risk of default has eased, offering relief to the broader economy.

At its core, the move indicates improved confidence in Kenya’s ability to manage its debts, helping shield ordinary citizens from the harsh effects that usually accompany financial distress, such as higher taxes, inflation, job losses and cuts to essential services.

The ratings agency cited stronger foreign exchange reserves, a more stable shilling and better access to financing, meaning the country has more breathing room to plan rather than react to crises. This stability helps protect key imports like fuel and medicine, reassures investors, and reduces the risk of sudden economic shocks that often hit low-income households and small businesses hardest.

However, the upgrade is not a sign of prosperity, but recognition of improved crisis management. It gives the government credibility and time to stabilise the economy, not a free pass to relax reforms. The challenge ahead remains translating this regained stability into tangible relief for ordinary Kenyans and easing the everyday cost-of-living pressures they face.

Read: Why Moody’s Revised Kenya’s Outlook From Negative to Positive: CS Mbadi

>>> Moody’s downgrades Govt’s issuer rating to B2