The comment that cost Kenya Sh15b after Moody's misstep

Kenya lost at least Sh15 billion as a direct result of adverse commentaries and rating actions by Moody’s Ratings, a confidential African Union policy brief has calculated.

The revelation highlights a vulnerability that has pushed President William Ruto’s to seek reforms of the global credit rating system.

The internal document from the African Peer Review Mechanism (APRM), seen by The Standard details how the global ratings agency’s remark on Kenya triggered a chain of events that derailed the Ruto government’s debt strategy and saddled the treasury with billions of shillings in avoidable costs.

The global credit rating system is dominated by three major US-based agencies - Fitch Ratings, Moody’s Investors Service and Standard & Poor’s (S&P 500) - whose decisions Kenya and other African governments have often cited as the main reason of them to be loaned at a higher rate of interest than other comparable countries.

Their creditworthiness, Kenya and other African countries claim, also hinges on the decisions of these opaque credit ratings agencies.

Cost of borrowing

A rating downgrade is significant because it can sharply increase a country’s cost of borrowing in the international financial markets, as Kenya’s experience demonstrates.

The APRM report traces the financial damage directly to what it terms as Moody’s “premature and analytically flawed assessment”.

The sequence began in June 2023.

At the time, President Ruto and the Kenya Kwanza government had announced an ambitious plan to repurchase a large portion of its $2 billion (Sh258 billion) international bond, known as a Eurobond, which was due for repayment in 2024.

A bond is essentially a loan that governments raise from international investors, promising to pay it back with interest.

The strategy, akin to a homeowner refinancing a mortgage early to get a better deal, aimed to buy back the existing bonds from investors at a slight discount.

The goal according to the Treasury plan was to raise new and smaller loans to fund this buyback, thereby spreading out the repayment burden and calming the volatile Kenyan shilling at the time.

Market reaction was initially positive. However, on August 2, 2023, the plan unravelled.

Miscalculated views

In a Bloomberg interview, a Moody’s analyst declared that Kenya’s proposed voluntary buyback would be treated as a “default” and categorised as a “distressed exchange.”

A “distressed exchange” is a credit rating term used when a borrower offers creditors new terms that are less favourable than the original loan, because it is under financial stress.

The APRM brief argued that this label was completely misplaced, as Kenya’s plan was “a voluntary, pre-emptive market transaction, not a desperate negotiation with lenders.”

The analyst’s remark was made before Kenya had even announced the official terms of the buyback, the APRM report noted.

The Standard could not immediately reach Moody’s or the National Treasury for comment.

The market’s reaction was swift and severe. The declaration of a potential “default” spooked international investors. The price of Kenya’s international bonds plummeted.

A bond’s price and its yield, which is the effective interest rate the government must pay, have an inverse relationship. When the price falls, the yield rises.

In Kenya’s case, the bond yields spiked from 7.2 per cent to 9.1 per cent. This 1.9 percentage point jump is known as a 190 basis points increase.

The shilling weakened from Sh124 to Sh128 against the US dollar. The APRM brief quantifies the immediate financial destruction.

The six to seven per cent drop in the value of Kenya’s outstanding Eurobonds translated to an immediate paper loss of approximately Sh15.6 billion ($120 million at the time).

The volatility situation continued in July 2024 when Moody’s downgraded Kenya’s credit rating, citing “heightened political and social risks” after Ruto discarded the government’s finance bill containing tax hikes worth Sh346 billion following deadly Gen Z led protests.

The APRM report says that this action was seen as “premature,” noting a key distinction with Moody’s rival.

“In contrast, S&P indicated a more cautious approach, choosing to wait until the midterm fiscal data became available in August 2024,” the brief stated.

Higher interests

This downgrade meant that the Ruto-led government had to pay higher interest rates when it borrowed money, a major challenge for the newly appointed administration which had already been dealing with high domestic borrowing costs.

This high-cost borrowing environment made it harder for the government to service its large debt burden.

However, in a sharp reversal that the APRM sees as vindication of Kenya’s policy stance, Moody’s revised its outlook to “positive” in January 2025.

The report said this move “implicitly acknowledged that the earlier downgrade and negative outlook had been mistaken,” but noted the financial costs had already been incurred.

While the Kenya Kwanza government eventually succeeded in completing a bond buyback in October 2025, the report concluded it was done “at a higher redemption premium,” a lasting scar from the disruption.

President Ruto, has previously criticised rating agencies and has become a leading voice to reform how rating agencies deal with African sovereign countries like Kenya.

The APRM brief urges Kenya and African governments to build “stronger, more structured communication channels with rating agencies and to develop robust local financial research capacity” to avoid the repeat of such challenges.