African countries face some of the highest borrowing costs in the world, partly due to structural problems (economic, governance and public finances), but partly also due to low credit ratings which make them seem like risky investments. Such ratings lead to higher interest costs and lower borrowing through sovereign bonds. They also indirectly affect the amount of equity flowing to the continent, as FDI is often deterred by low credit ratings.
As part of UNDP’s project to support African countries improve their credit ratings, this knowledge platform is meant to serve as a one-stop-shop for data, methodological information, and research on credit ratings.
The Impact of Credit Ratings on Borrowing Costs
Credit ratings have a direct impact on the cost of borrowing, and by strengthening institutional coordination and technical capacity, Kenya is taking control of its credit narrative.
The narrative a country tells credit rating agencies is just as important as the data it shares. Your national credit rating strategy should not just be technical. It must be personal, deliberate, and forward-looking. This is your sovereign brand.
During the workshop, partners also conducted scenario-based trainings and simulations, equipping stakeholders with practical tools for engagement.
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AfriCatalyst is proud to support Kenya at this critical juncture. AfriCatalyst is a global development advisory firm headquartered in Dakar, Senegal. It partners with governments, development institutions, and the private sector to address complex macroeconomic and financing challenges in Africa.
Key Financial Figures
Here are some key financial figures:
- $11.3B Maturity: $11.3 billion amount of outstanding Eurobonds due to mature in January 2024.
- $4.8B Issuance: Benin, Kenya, and Cote d'Ivoire issued $4.8 billion in Q1 2024.
- 11.6% Interest: Africa interest costs averaged 11.6%, 8.5 percentage points higher than the US Benchmark.
- 2.1% Coupon: Sub-Saharan Africa paid 2.1% more in coupons than other regions from 2004 to 2021.
Sovereign Credit Ratings: Perspectives for Africa’s Development responds to a structural financing challenge facing the continent: as concessional resources shrink, African countries increasingly turn to capital markets, where credit ratings determine not only access to funding but also the cost of borrowing.
Through case studies from South Africa and the Democratic Republic of Congo, the report showcases how countries can influence credit ratings through institutional credibility, policy clarity, and strategic use of assets. These cases, along with the technical recommendations presented, position the report as a practical tool for countries aiming to lower their borrowing costs.
This report analyzes credit ratings methodologies in Africa, discusses financial and development ramifications, and proposes alternative approaches for countries where relevant data is scarce.
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Kenya's Credit Rating Upgrade by Standard & Poor's
Standard & Poor’s, one of three American credit rating agencies active in rating government bonds, just upgraded Kenya’s long-term government bond rating, from B- to B on August 22, 2025, after downgrading it from B to B- on August 23, 2024.
The rationale for S&P’s rating upgrade was Kenya’s recent robust export earnings, strong overseas remittances and more relaxed domestic monetary policy following passage of the Finance Act of 2025--conditions signaling greater flexibility for domestic borrowers and more cash flows for private sector credit growth.
S&P expressed confidence in Kenya’s ability to meet its Eurobond debt obligations through 2027 and additionally raised Kenya’s sovereign ceiling on global borrowings from B to B+.
Day 1 Highlights: National Workshop on Sovereign Credit Ratings in Kenya
Factors In Kenya’s Sovereign Credit Rating Rise
They may not all be obvious to market observers, financial coaches and trainers, development strategists and central bankers, who understand credit intellectually but do not navigate this special world of ratings and may not perceive how ratings are invisibly shaping their opportunities and expectations. For example, here are five levels of meaning related to Kenya’s upgrade:
1. Better Credit - More Money For Growth
This is the most obvious but it bears pointing out. A credit rating is a pricing benchmark but it is not a price, and yields do not have to go down just because the rating goes up.
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Yields on $7.41 billion (Sh958 billion) of Kenya’s Eurobonds on London and Irish exchanges immediately dropped by about 0.6% post-announcement. This may be taken to mean the market believed in Kenya’s upgrade.
Also, there is a nonlinear impact supporting greater economic resilience as Kenya pays less in interest costs and has more capacity for fundamental investment. Granted, these bonds have different structures and maturities, but broadly assuming an average life of 5 years and no prepayment, the total 0.6% cost of funds savings on $7.41 billion would be something like $220 million.
For Kenya, this scale of investment could support Kenya’s growth ambitions and targets by funding the building of another 280 kilometers of highway or 560 more schools.
2. The Ceiling - An Entrapment
Moody’s calls it a “Sovereign Ceiling" and S&P calls it a “Transfer and Convertibility” (T&C) assessments (both, a “Ceiling”). It is typically set at, or slightly above the long-term global sovereign rating.
The Ceiling caps ratings on all other borrowers under the jurisdiction of the sovereign, thereby locking the entire economy into a debt service economics inextricably linked to sovereign ratings. For example, Kenya’s cost of funds dropped below 9% after its long-term rating was upgraded. That’s good.
But with B+ Ceiling, the borrowers in Kenya’s economy will still likely to have to pay as much as 5% more per annum for its debt than borrowers whose Ceiling is rated at the double-B level. Currently eight African countries have at least one double-B long-term sovereign rating and that much more financing flexibility.
Kenya can continue to do the steady work of raising its ratings into the double-B range for the benefit of the whole economy. In the meantime, it may be useful for Kenya’s financial community to know there are two ways around the cost impact of sovereign ceiling. One is obviously to convince bondholders that the ratings are too low. The other is to issue a structured finance bond that fits the criteria that credit rating agencies will accept to pierce the Ceiling.
3. The Split Rating - Mixed Messaging
Besides the long-term rating of B by S&P, Kenya is rated Caa1 by Moody’s and B- by Fitch. A split like this implies very different risk scenarios and default probabilities on the part of each agency.
Although split ratings may be viewed by some investors as an opportunity for extra return for the risk grade, in the main split ratings are inconvenient and awkward to many investors. As the data show, split sovereign credit ratings are not at all uncommon in Africa.
Among Africa’s most populous countries, Nigeria, Ethiopia, Egypt, South Africa and Kenya all have split ratings. Only the Democratic Republic of the Congo and Tanzania do not. Kenya and Egypt are both rated Caa1 by Moody’s, while S&P and Fitch’s differ by one notch in reverse.
But what does this mean about the credit profiles and growth trajectories of Egypt and Kenya? I find the juxtaposition odd. Does it reveal unobvious similarities between their credit situations or betray a critical lack of credit ratings’ explanatory power?
4. The Bounce - A Sign Of Resilience
Exactly one year ago, S&P downgraded Kenya from B to B- after instabilities arising from the Kenyan government’s decision to withdraw the 2024/2025 Finance Bill after widespread public protests in June 2024.
The bill was intended to address Kenya’s fiscal imbalances and debt by raising taxes, but it raised the hackles of a lot of people including Kenya’s youth. A new law, The Finance Act of 2025, was passed in June 2025 for 2025/2026 that focused on increasing tax compliance, reducing government spending, and moving towards global standards to “strengthen budget credibility and prioritization.”
Within the one-year time frame, Kenya’s government took feedback and used it to craft a less harsh, more growth-oriented finance package. Gathering and using social feedback is a positive for building economic resilience and solidifying political relationships between groups.
In that sense, the adjustment has a clear credit rationale, in spite of the lower ratings by Moody’s and Fitch’s. Will Moody’s and Fitch follow suit in 2025?
5. Deconstructing Credit Rating Agency Actions In Time
There are 10 Securities and Exchange Commission-licensed credit rating agencies, called NRSROs (Nationally Recognized Statistical Rating Organizations), but only the oldest, Moody’s, S&P and Fitch, have wide global coverage of sovereign credit ratings.
Sovereign credit ratings were closely linked to the Asian Crisis onset, and they were integral to the story of Asia’s economic recovery. There is considerable history on the timing of the Big Three’s downgrades and upgrades in the Asian countries that had the most pronounced impacts: Indonesia, South Korea, Malaysia and Thailand.
But in recent years, the rising and falling patterns in African sovereign credit ratings have become more pronounced and hence more available for observation and analysis.
Ratings change in response to financial, economic and political factors, but there are times when commercial and tactical rationales may also be at play.
Overview of Credit Rating Agencies Operating in Kenya
Several credit rating agencies assess the creditworthiness of Kenya, each with its own methodology and focus.
Agusto & Co.
Agusto & Co., a Nigerian credit rating agency with offices in Nigeria, Kenya, Rwanda, and Ghana, do generate sovereign credit ratings but a. do not reveal the methodology publicly, and b. Its methodology is publicly available (in French only).
The structure of the sovereign methodology and its contents are almost identical to the big three methodologies and include a focus on:
- Political and Social Environment
- Social Structures
- Political Environment
- Macroeconomic Analysis
- Economic Performance
- Coherence of the Economic Policy Implemented
- Public Finances
- Estimation of Public Debt
- Debt Weight
- State Budget
- Monetary Institutions and Policy
- External Situation
- External Debt
- External Assets
- External Financing Policy
How the above is weighted against each other to come to an overall rating is not declared, nor are there any indications as to likely sources of information for any of the determinants.
GCR Ratings
GCR Ratings is the largest rating agency on the African Continent. It was purchased by Moody’s in 2022 and provides almost three times more ratings than its nearest coverage competitor, S&P.
GCR does not provide sovereign ratings, but instead generates ‘sovereign risk’ scores that it injects into its corporate ratings. To determine this Country Risk Score, GCR apply the following metrics/categories:
- The Structural Country Risk Score
- Economic Strength’, which takes into account metrics such as GDP per Capita.
- Idiosyncratic Stress & Sovereign Risks or Strengths
- Fiscal
- Geopolitical
- External Position
- Monetary Policy
- Size and Diversification
Sovereign Africa Ratings
Sovereign Africa Ratings is a domestic Credit Rating Agency situated in South Africa. A relatively new player to the field, the small agency does publish its methodology.
The sovereign methodology of Sovereign Africa Ratings is based on five (5) particular pillars. They are:
- Economic Strength
- GDP Growth and Relative Size
- Structure
- Financial Strength
- Debt profile
- Local currency/financial markets
- Institutional Strength
- Institutional Effectiveness
- ESG
- Natural Resources
- Extraction and Beneficiation
African Peer Review Mechanism (APRM) Concerns
In line with the African Union Assembly of Heads of State and Government Decision [Assembly/AU/Dec.631(XXVII)] and Article 6(g) of the African Peer Review Mechanism (APRM) Statute (2020), which mandates the APRM to support African countries on credit ratings, the APRM undertakes routine analyses of rating actions and commentaries assigned by international credit ratings agencies on African countries.
The APRM notes with concern the errors in recent credit rating actions by Moody’s.
On 24 January 2025, Moody’s changed Kenya’s outlook from ‘negative’ to ‘positive’ and reaffirmed its Caa1 rating, citing a potential ease in liquidity risks and improving debt affordability over time. It is rare for a credit rating agency to move from ‘negative’ to ‘positive’, skipping a ‘stable’ outlook. The change is an admission, in remedy, that a negative outlook was an incorrect rating.
This rating action was a reversal of Moody’s premature rating action on 08 July 2024 which was largely driven by protests in Kenya over the proposed Finance Bill.
The July 2024 rating downgrade by Moody’s was speculative, as midterm review data on the Appropriation Bill, the spending allocations, the final budget, the finance bill, and the new cabinet had not yet been released when the rating agency made its announcement.
This is not the first time Moody’s has acted prematurely and erred in its analysis. In January 2023 Moody's also erred by downgrading Nigeria from ‘B3’ to ‘Caa1’ citing that the government's fiscal and debt position was expected to deteriorate further under the new administration.
The Federal Government of Nigeria challenged the inaccuracy of that rating action on the basis that the rating agency lacked an understanding of the country’s domestic environment. Moody’s later reversed Nigeria’s outlook from ‘stable’ to ‘positive’ in December 2023, citing positive economic policy developments in the country.
The APRM views such rating actions as irresponsible and detrimental, leading to unnecessary costs to governments, triggering Eurobond sell-offs, and sustaining a negative sentiment on African instruments.
Kenya's Economic Performance
CS Mbadi further noted that Kenya’s economy grew by 5% in Q2 2025, up from an average of 4.9% in 2024, and is projected to expand by 5.3% in 2026.
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