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 according to Moody's, Kenya has downgraded to the lowest classification of “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 a 15-year bond auction having been cancelled mid-April owing to low appetite from investors.
Full financial year target
According to the latest data from the National Treasury, receipts from domestic borrowing closed April 2023 at Sh406.6 billion against the full financial year 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 National Treasury invited Expressions of Interest from global banks keen on arranging the country's planned issuance of a Eurobond in the financial year between July 2023 and June 2024.
Friday, April 28 was the deadline for interested banks to submit their expressions of interest.
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 a Eurobond 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.