Fitch Affirms Kenya at B‑/Stable — But Warns Debt & Deficits Weigh Heavily

 Key Takeaways from Fitch (July 2025)

• Credit Rating Affirmed: Kenya’s long-term foreign-currency issuer rating remains B‑ with a stable outlook, reaffirmed on July 2, 2025.

• Debt Levels Still Elevated: Public debt stood at 66% of GDP in FY25, down from around 71% in FY23, and forecasted to modestly decline to 64% by the end of FY26.

 Internal Pressures and Economic Indicators

• GDP Growth Rebound: Fitch projects real economic growth of 4.9% in 2025, up from 4.7% in 2024. The rebound is driven by resurgent private sector activity and easing inflation.

• Fiscal Deficits Remain High: The FY25 fiscal deficit is seen at 5.8% of GDP, significantly above the government’s revised target. Fitch expects FY26 deficit to remain elevated at 5.2% due to limited fiscal tightening.

• Revenue Underperformance: Government revenue is projected at 17.2% of GDP in FY26, trailing both the government’s target (17.5%) and median among B‑ rated peers (~17.7%).

• Interest Costs High: Interest payments are expected to absorb around a third of government revenue in FY26, almost triple the peer median of 12%.

🛡️ FX Buffers & External Financing Conditions

• Reserves Improved, but Still Thin: As of June 2025, Kenya’s foreign reserves stood at USD 11.1 billion, offering about 3–4.6 months’ import coverage—below levels typical for similarly rated sovereigns.

• Financing Risks: Fitch flagged uncertainty following the cancellation of Kenya’s IMF program and potential delays in World Bank funding. The government may rely more on costlier domestic and commercial borrowing.

 Strategic Implications for Kenya

 Final Insight

Fitch’s B‑/Stable rating reflects Kenya’s ability to meet its debt obligations for now, but also signals caution: a debt burden at 66% of GDP and deficits nearing 6% continue to restrict fiscal flexibility and elevate refinance risks. Kenya’s economic rebound to 4.9% growth and stronger FX reserves (~USD 11B) provide buffers—but challenges in revenue mobilization, governance, and external financing mean progress remains fragile.

Reform pathways worth watching:

1. Revenue-enhancing tax reforms and digital collection systems.

2. Debt restructuring or liability management guided by stronger fiscal discipline.

3. Strengthened transparency to boost investor confidence and unlock concessional support.

The coming two years are critical. Without durable gains in fiscal discipline and revenue growth, Kenya risks remaining trapped in a high‑risk credit profile. But with prudent management, Fitch could consider upward revisions—especially if debt falls gradually and revenues strengthen.