The cost of living, loans, and borrowing costs are some of the things that stand to benefit from the positive credit rating from Moody’s ratings released last week. Contrary to what most people think, the credit rating is crucial.

On January 24, 2025, Moody’s Investors Service revised Kenya’s credit outlook from negative to positive while affirming its Caa1 rating. This was the first positive outlook since August 2008.

Kenya’s credit rating history has seen fluctuating fortunes over the years, with major changes occurring under the presidencies of Mwai Kibaki, Uhuru Kenyatta, and now William Ruto. During Kibaki’s tenure, Kenya saw credit rating upgrades due to economic reforms while under Kenyatta, the country faced downgrades primarily due to rising debt levels.

The shift to a positive outlook in January 2025 represents a significant departure from the recent downturns in credit ratings, particularly following a downgrade in July 2024. However, while the rating remains at a Caa1 level, signaling high credit risk, the implications for Kenyans and businesses are profound.

Treasury CS John Mbadi during a consultative discussion with representatives from the National Gender and Equality Commission on December 5, 2024.

National Treasury

The shift to a positive outlook has been attributed to several key developments, including the passage of a supplementary budget, a $606 million disbursement from the International Monetary Fund (IMF), and the implementation of the Tax Amendment Act by the end of 2024.

With inflation at a low 3 per cent, a stable currency trading at Ksh129 to the dollar and interest rates reduced to between 9 per cent and 14 per cent, the move reflects an improved liquidity position and greater debt affordability for Kenya.

For many, the immediate effects of this shift are tangible. “For Kenyans, these developments translate into real benefits,” said John Mbadi, Cabinet Secretary for Treasury. “Stable inflation has eased the cost of living, while reduced borrowing costs have made credit more affordable for small businesses and individuals. Grassroots initiatives have created jobs, improved livelihoods, and empowered communities.”

However, not everyone is convinced by the positive outlook. The African Peer Review Mechanism (APRM), an African Union body, has criticised the upgrade, calling it premature and irresponsible. The APRM argues that Moody’s did not take into account key factors such as the final budget, the finance bill, and midterm review data from the Appropriation Bill, which could affect Kenya’s fiscal position.

Despite these reservations, the country’s economic trajectory is largely shaped by the bold interventions rolled out by President William Ruto’s administration. Under the government’s Bottom-Up Transformative Agenda (BETA), economic measures aimed at curbing inflation, lowering the cost of credit, and improving access to health and education have begun to show positive results.

The improved credit outlook also has implications for the cost of living. As borrowing costs decrease, individuals and businesses alike stand to benefit from lower interest rates. “This is a positive development that could ease financial pressures for Kenyans, especially small business owners who have been grappling with high borrowing rates,” said Mbadi.

Further, businesses operating in Kenya are expected to see a reduction in operational costs, with some industries even expecting increased foreign investment as investor sentiment improves. The stabilisation of the currency and a decline in interest rates could also enhance Kenya’s attractiveness as a destination for international capital.

However, Kenya’s economic recovery is not without its challenges. While inflation has remained low, it is still critical to manage fiscal policy and ensure that public services are adequately funded.

Increased tax rates in some sectors and contributions to social programmes like the National Social Security Fund (NSSF) and the Social Health Authority (SHA) have sparked debate, but these measures are seen as necessary to support the government’s long-term fiscal consolidation goals.

Looking ahead, the path to sustained economic growth is clear but fraught with risks. “The journey ahead will require continued commitment to reform, innovation, and accountability,” Mbadi wrote in a recent opinion piece in Business Daily. “However, with its strong foundation and clear vision, Kenya is well-positioned to sustain its progress and achieve long-term prosperity.”

For everyday Kenyans, the outlook brings a mixture of optimism and caution. Lower borrowing costs and more affordable credit could help alleviate some financial pressures, while the stabilisation of inflation offers a much-needed reprieve in the face of rising living costs.

The real test, however, will be whether these improvements can be maintained in the long term, particularly as global economic conditions and domestic policy adjustments continue to evolve and with the looming election in mind.

A photo of the entrance of the National Treasury offices in Nairobi taken on March 16, 2018.

Photo

National Treasury