- Moody's also said it was placing Kenya's ratings on review for downgrade.
- The review will focus on domestic funding conditions, the cost of domestic borrowing
Moody's Investors Service has further downgraded Kenya's long-term foreign-currency and local-currency issuer ratings and senior unsecured debt ratings to B3.
The rating had previously been B2, with a negative outlook, Moody's said.
The rating downgrade was driven by an increase in government liquidity risks, Moody's said.
"Domestic funding conditions have deteriorated considerably over the past two months, with very low net domestic issuance contributing to financing shortfalls and delays in government spending," according to the ratings agency.
Moody's also said it was placing Kenya's ratings on review for downgrade, "prompted by the risk that the deterioration in Kenya's domestic financing conditions persists amid still constrained external financing options."
The review will focus on domestic funding conditions, the cost of domestic borrowing, and "the extent to which net domestic financing improves at the expense of a worsening in debt affordability.
Moody's also said it expects Kenya's interest-to-revenue ratio to peak at 28 per cent in fiscal year 2023, and remain at 26 per cent in the subsequent two years.
The downgrade means that Kenya's creditworthiness has lowered in the eyes of both domestic and international lenders at the time the country is shopping for the fifth Eurobond bond to retire the inaugural one taken in 2014.
Kenya is expected to make the bullet payment to retire the 10-year sovereign bond whose issuance in 2014 signalled the Jubilee administration’s turn to commercial debt to fund the budget.
Kenya took up $2.75 billion (Sh345.5 billion at today’s rates) in two tranches consisting of a 10-year paper and a five-year issuance ($750 million), at interest rates of 6.78 per cent and 5.87 per cent respectively.
The five-year paper was repaid partly using the proceeds of another $2.1 billion Eurobond issued in May 2019.
It is also expected to activate risk concerns amongst domestic borrowers who have already ditched long-term bonds or are quoting rates in the range of 15 per cent.
The majority are opting for short-term bonds and Treasury bills whose yields are threatening to break the 10 per cent wall.