Moody's Ratings has upgraded Kenya's sovereign rating to B3 from Caa1 and altered the outlook to stable from positive, citing a reduced probability of default and stronger external liquidity metrics.
The agency pointed to a marked increase in foreign exchange reserves, which it said rose to $12.2 billion at the end of 2025, equivalent to about 5.3 months of import cover. That compares with reserves of $9.2 billion at the end of 2024.
Moody's also highlighted an improvement in the current account position. Kenya's current account deficit narrowed to 1.3% of GDP in 2024 from 5.2% in 2021, a change the agency attributed to a larger services surplus, higher remittances, and stronger goods exports.
On external financing, the East African country returned to international debt markets in 2025, completing two Eurobond issuances totaling $3.0 billion. Moody's said part of the proceeds were deployed to repurchase $1.2 billion of bonds maturing between 2026 and 2028, effectively moving the next sizeable Eurobond maturity out to 2030.
Domestic financing conditions have shown signs of easing, according to the rating agency. Treasury bill yields fell to below 8% in December 2025 from 9.9% a year earlier. Meanwhile, the average coupon on newly issued Treasury bonds declined to around 13.5% in the first half of fiscal 2026 from nearly 15% in the previous fiscal year.
Despite those improvements, Moody's said Kenya's rating continues to be limited by weak debt affordability and slow progress on fiscal consolidation. The agency expects the fiscal deficit to remain close to 6% of GDP, with the stock of debt broadly stable at around 67% of GDP.
"Heavy reliance on domestic borrowing supports near-term financing capacity, but high domestic interest rates will keep the interest costs elevated and constrain already very weak debt affordability," Moody's stated.
Moody's also adjusted its sovereign ceilings, raising the local-currency ceiling to Ba3 from B1 and the foreign-currency ceiling to B1 from B2.
Looking ahead, the agency set out conditions that could prompt further rating action. An upgrade would require sustained improvements in fiscal performance that put the debt burden on a clear downward path and enhance debt affordability. Conversely, Moody's warned that a material rise in liquidity risks or a sustained deterioration in fiscal performance could trigger a downgrade.
The rating change reflects a mix of stronger external cushions and better market access alongside continuing fiscal vulnerabilities. Market participants and policymakers will likely monitor reserve trajectories, fiscal outturns, and domestic financing costs as indicators that could influence future sovereign credit assessments.