The rating agency highlights a marked improvement in Kenya’s external liquidity position, with foreign exchange reserves projected to reach approximately $12.4 billion by the end of 2025. This enhancement is attributed to various supportive factors, including increased portfolio investment inflows, substantial official loans, robust export performance, growth in tourism receipts, rising remittances, and recent foreign exchange acquisitions by the central bank.
Regarding sovereign debt management, Kenya's government has actively engaged in liability management strategies to alleviate external debt pressures. For instance, in October 2025, the government partially refinanced a $1 billion Eurobond maturing in 2028. This measure followed an earlier refinancing of a $0.9 billion Eurobond in February 2025. Additionally, Kenya undertook a debt conversion operation by translating part of its dollar-denominated liabilities owed to the Export-Import Bank of China into renminbi. Alongside renegotiated terms, this conversion is estimated to generate fiscal savings of around 0.1% of GDP annually.
Despite these positive developments, Kenya faces considerable fiscal challenges. Fitch forecasts a fiscal deficit of 5.8% of GDP for the fiscal year ending June 2026, which exceeds both the government’s target of 4.7% and the median fiscal deficit of 3.5% among comparable 'B' rated peers. The rating agency attributes the higher deficit to expanding expenditure commitments, including increased interest payments, drought-related costs, and elevated social and security-related spending in anticipation of the 2027 general elections.
Government external debt servicing obligations are projected to rise to $5.3 billion, representing about 3.7% of GDP in the fiscal year ending June 2026, up from $5 billion in the previous period. Although a moderation to $4.5 billion (2.9% of GDP) is expected in FY27, external debt service payments are forecast to rebound above $5 billion in fiscal years 2028 through 2030, indicating sustained heavy gross external financing requirements.
Kenya continues to face challenges in revenue mobilization. Fitch projects total government revenue collection to amount to 17.2% of GDP, falling short of the government's target of 17.4% and below the average of 18.7% among 'B' rated peers. Revenue underperformance persisted during the first half of fiscal year 2026.
The prospect of acquiring additional support from international financial institutions remains uncertain. Fitch does not anticipate Kenya securing an International Monetary Fund (IMF) program in FY26 and underscores doubts about fulfilling reform benchmarks required for World Bank funding. In the absence of these external supports, Kenya may be compelled to rely increasingly on commercial borrowing to meet financing needs.
The ratio of interest payments to government revenue is expected to remain elevated at over 30%, significantly higher than the median rate of 16% for 'B' rated countries. This is largely due to increased government dependence on domestic and commercial borrowing. Although total government debt is forecast to decrease slightly to 68.6% of GDP by fiscal year 2027, it will persistently remain above the median debt level of 54.7% seen in similar credit ratings.