Moody's downgrades Kenya's economy after withdrawal of Finance Bill: summary

What we know

• Global rating agency Moody's has recently downgraded Kenya's credit rating, signalling increased concerns about the country's economic stability and its ability to meet debt obligations.
• Moody's has lowered Kenya's rating from B3, where the country's debt obligations were considered speculative and subject to high credit risk, to Caa1, indicating that the obligations are poor and subject to "very high credit risk."
• A lower rating for Kenya suggests that the global agency sees a higher risk of the country defaulting on its debt obligations due to financial uncertainty. This downgrade also raises questions about Kenya's capacity to manage its debt and economic policies effectively, Citizen Digital reports.
• Moody's ratings assess the likelihood of a country defaulting on its debt and the potential financial loss in the event of a default. 
• The New York-based agency rates the creditworthiness of corporations and governments, using Moody's Analytics, a software that provides data to help investors make informed decisions.

What they said

A statement released by Moody’s read in part, “Kenya's local currency (LC) ceiling was lowered to B1 from B3, maintaining a three-notch difference with the sovereign rating, which reflects relatively weak institutions and policy predictability and moderate political risk set against a relatively small footprint of the government in the economy and limited external imbalances. The foreign currency (FC) ceiling was lowered to B2 from B1, one notch below the LC ceiling, which reflects relatively low external debt and a moderately open capital account, which reduces, although does not remove entirely, the incentives or need to impose transfer and convertibility restrictions in scenarios of intensifying financial stress. Kenya's previous B3 rating was predicated on the government continuing with a fiscal consolidation strategy that encompassed significant revenue-raising measures that would narrow the fiscal deficit, contain the debt burden and at least stabilise debt affordability. Importantly, these efforts would ensure multilateral support from the IMF and others to alleviate financing pressure from Kenya's large external amortizations. The negative outlook captured downside risks primarily related to liquidity risk and elevated refinancing needs against limited external financing options and reliance on expensive domestic financing of the fiscal deficit.”