AU Criticizes Moody’s Latest Positive Rating On Kenya As Irresponsible

The African Union (AU) has slammed the latest credit rating adjustment for Kenya by global rating firm Moody’s, which recently revised the country’s outlook from negative to positive.

The Union, through its arm, African Peer Review Mechanism (APRM), has labelled the decision as incorrect, irresponsible and detrimental, pointing out that Kenya has not yet navigated through a stable economic outlook to justify such a shift.

“It is rare for a credit rating agency to move from ‘negative’ to ‘positive’, skipping a ‘stable’ outlook,” the Union said in a statement dated January 27.

“The change is an admission, in remedy, that a negative outlook was an incorrect rating.”

Additionally, the AU says the rating action was a reversal of Moody’s premature rating action on July 8, 2024, which was largely driven by protests in Kenya over the proposed Finance Bill.

It notes that the rating 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.

On January 24, 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.

“Domestic financing costs have started to decline amid monetary easing and could continue to do so if the government sustains its more effective management of social demand and fiscal consolidation,” Moody’s said.

Commercial external funding

It added that such a track record would also boost Kenya’s access to both concessional and commercial external funding.

“Revenue collection efforts, if successful, present the potential for further improvements in debt affordability, although Kenya has struggled to expand revenue significantly and durably in the past, notwithstanding recent measures.”

Nevertheless, the agency noted that a new International Monetary Fund programme would enhance Kenya’s external financing while other multilateral creditors such as the World Bank will continue to be significant financing sources, even without the IMF funding.

Notably, the disagreement between AU and the agency’s rating highlights the broader debate over the role of international credit rating agencies and their impact on emerging economies.

The AU says this is not the first time Moody’s has acted prematurely and erred in its analysis.

In January 2023, AU said Moody’s also erred by downgrading Nigeria from ’83’ to ‘Caat’ citing that the government’s fiscal and debt position was expected to deteriorate further under the new administration.

As a result, 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.

Consequently, Moody’s later reversed Nigeria’s outlook from ‘stable’ to ‘positive’ in December 2023, citing positive economic policy developments in the country.

“However, relatively similar factors were present when Moody’s downgraded Nigeria and the rating reversal in the short-term was evidence that the rating agency had acted prematurely and erred”.

The Union thus reiterates that such rating actions as irresponsible and detrimental, leading to unnecessary costs to governments, triggering Eurabond sell-offs, and sustaining a negative sentiment on African instruments.