S&P Upgrades Kenya’s Credit Rating to ‘B’ on Easing Liquidity Risks: Strong Diaspora Remittances and Export Growth Drive Economic Confidence

Global credit ratings agency S&P Global Ratings upgraded Kenya’s long-term sovereign credit rating to ‘B’ from ‘B-‘ on Friday, citing reduced near-term external liquidity risks and improved economic management. The upgrade represents a significant vote of confidence in Kenya’s economic trajectory under President William Ruto’s administration, marking a recovery from the previous year’s downgrade.

The rating agency maintained Kenya’s outlook at ‘stable,’ reflecting expectations that the country’s robust economic growth and enhanced external liquidity position will offset ongoing challenges from high interest costs and a gradual fiscal consolidation process.

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Robust Diaspora Remittances Drive Economic Stability

Robust export earnings and diaspora remittances have bolstered Kenya’s foreign exchange reserves, helping ease pressures related to high external imbalances. Kenya’s diaspora community has emerged as a crucial pillar of economic stability, with remittances reaching unprecedented levels and becoming the country’s top foreign exchange earner.

Kenya received $440.08 million in diaspora remittances in May 2025, marking the second-largest monthly inflow on record. The collective five-month total for 2025 reached an unprecedented $2.10 billion, representing a sharp 14% increase compared to the same period in 2024, when inflows totaled $1.84 billion.

The performance builds on Kenya’s record-breaking 2024 diaspora inflows of $4.94 billion (Sh637 billion), shattering the Central Bank of Kenya’s forecast of Sh600 billion and representing an 18% increase from 2023’s $4.19 million (Sh540.5 billion).

Foreign Exchange Reserves Reach Historic Highs

The surge in diaspora remittances and strong export performance have contributed to a dramatic improvement in Kenya’s external position. Foreign reserves hit $11.2 billion (Sh1.46 trillion) in July 2025, up from $6.6 billion (Sh858 billion) at the end of 2023, while the current account deficit narrowed to 1.3% of GDP in 2024, compared to 2.6% in 2023.

This remarkable improvement in Kenya’s external position reflects the effectiveness of various policy measures and favorable global conditions. The Central Bank of Kenya has been actively purchasing excess foreign exchange from the market, with reserves reaching $10.9 billion as of August 2025. Dollar liquidity in the interbank foreign exchange market has remained adequate, supported by CBK reforms aimed at improving market transparency and enhancing price discovery.

The strengthened reserves position provides Kenya with crucial financial buffers. As of January 2025, reserves stood at $9.143 billion (Sh1.184 trillion), equivalent to 4.7 months of import cover, comfortably exceeding the CBK’s statutory requirement of maintaining at least four months of import cover.

Economic Growth Exceeds Projections

President William Ruto announced earlier this week that Kenya’s economic growth this year is expected to exceed official forecasts despite higher U.S. tariffs and other global challenges. The economy is projected to grow by 5.6% in 2025, surpassing both the finance ministry’s forecast of 5.3% and the central bank’s projection of 5.2%. This represents a significant improvement from the 4.7% growth recorded in 2024.

The projected growth trajectory positions Kenya to overtake Ethiopia as East Africa’s largest economy in 2025, with the IMF forecasting Kenya’s economy to reach between $131.673 billion and $132 billion. This potential achievement reflects Kenya’s strengthening economic fundamentals and improved policy management.

Monetary Policy Support and Declining Borrowing Costs

The Central Bank of Kenya’s accommodative monetary policy has played a crucial role in supporting economic recovery. Since August 2024, the CBK has cut rates by 350 basis points to 9.5%, bringing the benchmark rate down from previous highs as inflation remained contained.

This monetary easing has translated into significantly lower domestic borrowing costs. Treasury bill yields dropped to 8% in July 2025 from 16% a year earlier, reducing the government’s financing costs and creating space for private sector credit growth. The 91-day Treasury bill rate fell from a peak of 15.9% in mid-2024 to 9.56% by January 2025, reflecting improved liquidity conditions and investor confidence.

Inflation has remained well-anchored, averaging 4.1% and staying below the CBK’s mid-range target of 5.0% plus or minus 2.5%. S&P forecasts inflation to remain contained at about 4.4% over 2025-2028, providing a stable macroeconomic environment for sustained growth.

Recovery from 2024 Downgrade

The upgrade represents a significant turnaround from S&P’s previous assessment. In 2024, S&P had downgraded Kenya’s sovereign credit rating from ‘B’ to ‘B-‘ citing uncertainties in Kenya’s future economic stability and debt management. The 2024 downgrade was a direct response to President Ruto’s decision to abandon the controversial Finance Bill 2024, which aimed to generate Ksh346 billion through new taxes but faced widespread public opposition.

The reversal of this downgrade within a year demonstrates the effectiveness of the government’s alternative economic management strategies. Rather than relying on aggressive tax increases, the administration has focused on improving revenue collection efficiency, managing expenditures, and leveraging external financing sources.

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Debt Management and Eurobond Success

Kenya’s improved credit profile reflects successful debt management strategies, particularly the handling of Eurobond obligations. In February 2025, Kenya completed its first domestic bond buyback worth KES50.1 billion ($387 million) on three distinct issues maturing in April and May 2025, with participation rates varying from 11% to 80% across different bonds.

S&P characterized this buyback operation as opportunistic rather than distressed, noting that the government would likely have paid these obligations on time and in full even without bondholder participation. The agency expects the government to conduct additional local currency bond exchanges in the coming months, further optimizing the debt profile.

The successful February 2024 Eurobond issuance and subsequent liability management operations have eased medium-term refinancing pressures. These operations reduced Kenya’s Eurobond obligations over the next two years from approximately Ksh38.760 billion annually to about Ksh13.953 billion, creating more manageable debt service levels.

Diaspora Policy and Government Engagement

Kenya’s success in attracting diaspora remittances reflects deliberate policy efforts to engage with citizens abroad. The Ministry of Foreign Affairs estimates that more than three million Kenyans currently reside abroad, with significant populations in the United States, United Kingdom, Canada, and other regions including the Middle East and Australia.

The establishment of the State Department for Diaspora Affairs in 2022 under President Ruto’s directive represents a structured approach to diaspora engagement. The department has been tasked with addressing issues concerning Kenya’s diaspora community and unlocking their full potential for national development.

The US remains the largest source of remittances, contributing 51% of the total amount, reflecting the substantial Kenyan community in North America. This concentration provides stability while also highlighting the importance of maintaining strong relationships with diaspora communities in key destination countries.

Export Performance and Economic Diversification

Kenya’s export sector has demonstrated resilience and growth, contributing significantly to the improved external position. Strong performances in horticulture, tea, coffee, and minerals have supported foreign exchange earnings, while the country has maintained its position as a regional hub for trade and services.

Kenya is now earning more foreign exchange from diaspora remittances than each of its major traditional exports – coffee, tea, and horticulture. This diversification of foreign exchange sources provides greater economic resilience and reduces dependence on volatile commodity prices.

The services sector, including tourism, continues to recover from pandemic-related disruptions. Kenya’s position as a regional financial and logistics hub, combined with its stable political environment relative to some neighbors, has attracted continued investment and business confidence.

Financial Sector Development and Access

Kenya’s sophisticated financial sector has facilitated the growth in formal remittance channels. The development of mobile money platforms, particularly M-Pesa, has revolutionized financial inclusion and made it easier for diaspora communities to send money home efficiently and cost-effectively.

Local financial institutions have developed products aimed at encouraging financial inclusion among diaspora communities, ranging from savings accounts to investment opportunities tailored for people living abroad. This has helped formalize financial activities and encouraged more remittances through official channels.

The continued development of capital markets has also provided the government with diverse financing options. Kenya’s relatively deep domestic capital markets, noted by S&P as a credit strength, have enabled successful domestic bond issuances and provided alternative funding sources to external borrowing.

Challenges and Risk Factors

Despite the positive developments, S&P cautioned that challenges remain. The agency warned that the rating could face renewed pressure if reserves weaken or refinancing risks rise. Rising interest costs and the slow pace of fiscal consolidation continue to pose medium-term challenges.

The global environment presents ongoing risks, including potential changes in remittance flows due to economic conditions in diaspora destination countries. High remittance transfer costs remain a concern, with fees from countries like the United States to Kenya remaining higher than the global average at up to 12%, well above the UN target of 3% by 2030.

Political and social challenges continue to constrain government revenue mobilization, while high levels of informality in the economy limit the tax base. These structural issues require sustained attention to ensure long-term fiscal sustainability.

Regional Economic Leadership

The credit upgrade reinforces Kenya’s position as East Africa’s economic leader and a key driver of regional integration. Kenya’s projected rise to become the region’s largest economy in 2025 reflects not just statistical achievement but growing influence in shaping regional economic dynamics.

The country’s success in managing external challenges while maintaining growth provides a model for other regional economies facing similar pressures. Kenya’s experience with diaspora engagement and financial sector development offers lessons for countries seeking to harness emigrant communities for development finance.

Investment Implications and Market Access

The credit rating upgrade has important implications for Kenya’s access to international capital markets. Higher ratings typically translate to lower borrowing costs and improved investor appetite for Kenyan securities, both sovereign and corporate.

The upgrade indicates greater investor confidence in the country’s policies, which should facilitate future financing needs at more favorable terms. This improved market access provides the government with greater flexibility in managing its financing requirements and reducing dependence on more expensive funding sources.

For private sector entities, the sovereign upgrade often serves as a ceiling for corporate ratings, potentially enabling better financing conditions for Kenyan companies seeking international funding.

Future Outlook and Sustainability

Looking ahead, S&P’s stable outlook reflects confidence that Kenya can maintain its improved trajectory. The agency expects Kenya’s robust growth and reduced near-term external liquidity risks to continue balancing fiscal consolidation challenges and high interest costs.

S&P noted potential for further upgrades if Kenya demonstrates steady commitment to sustainable public finances through significant reduction in fiscal deficits and interest costs beyond the agency’s base-case forecast. This provides a clear roadmap for continued improvement in Kenya’s credit profile.

The sustainability of diaspora remittance flows will be crucial for maintaining external stability. With Kenya on pace to surpass the $5 billion mark in diaspora inflows by year-end 2025, the country is building a robust foundation for continued external balance.

The success in economic management under challenging global conditions demonstrates the effectiveness of pragmatic policy approaches that balance growth objectives with fiscal sustainability. This balanced approach has enabled Kenya to navigate external pressures while maintaining domestic stability and investor confidence.

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By: Montel Kamau

Serrari Financial Analyst

25th August, 2025