Kenya’s growing use of debt refinancing and bond restructuring could put its credit rating at risk if markets begin to view the moves as a sign of financial distress, S&P Global has warned.
The ratings agency said frequent debt restructuring could raise concerns about the country’s ability to meet its obligations and eventually increase the risk of a credit downgrade.
The warning came as S&P retained Kenya’s long-term sovereign credit rating at ‘B’ with a stable outlook. The agency, however, said the rating could come under pressure if the country’s foreign exchange reserves fall significantly or if the cost of servicing public debt continues to rise.
“We could lower the ratings if Kenya’s external refinancing pressures mount, likely due to a sustained decline in foreign exchange reserves; or if we perceive any debt-repurchase operations, domestic or external, to be akin to a distressed exchange,” S&P said.
“We could also lower the ratings if fiscal pressure further raises the government’s already-elevated interest costs.”
Kenya’s foreign exchange reserves currently stand at about $15.16 billion (Sh1.96 trillion), close to a record high. S&P said the reserves have helped ease some of the country’s immediate external financing pressures.
The agency noted that Kenya’s recent debt operations have not yet reached the level it considers a sign of default risk, despite increased reliance on refinancing.
The government has increasingly used switch bonds, which allow investors holding maturing debt to move their principal into longer-term government securities instead of receiving the money immediately.
The Central Bank of Kenya conducted four switch bonds between January and May, pushing back Sh66.8 billion in debt maturities that would otherwise have fallen due within two years. The government has also been issuing switch bonds more regularly, with each operation targeting between Sh10 billion and Sh20 billion.
Kenya is separately targeting the retirement of at least $500 million (Sh64.7 billion) in expensive external debt during the current financial year.
In February, the National Treasury bought back $415.4 million (Sh53.7 billion) of Eurobond debt due in 2028 and 2032. The repurchase was financed through a new $2.25 billion (Sh291.2 billion) Eurobond issued in two tranches maturing in 2034 and 2039.
The strategy has previously attracted scrutiny from credit ratings agencies. In 2024, Moody’s warned that Kenya could be considered to have defaulted if it bought back its Eurobond below its face value, as investors would have suffered an economic loss. Kenya eventually completed the transaction at face value.
S&P upgraded Kenya’s rating from ‘B-’ to ‘B’ in August 2025, citing reduced short-term liquidity risks. A ‘B’ rating remains in the non-investment-grade category and indicates that a borrower is vulnerable to adverse economic conditions, although it can still meet its financial obligations.
Moody’s also upgraded Kenya’s rating earlier this year, moving it from ‘Caa1’ to ‘B3’ after noting improvements in foreign exchange reserves, a more stable shilling and a narrower current account deficit.
However, S&P’s latest warning highlights the pressure facing the government as it seeks to refinance existing debt while keeping borrowing costs under control.
Kenya’s credit rating is closely watched by international investors because it influences the cost at which the government and Kenyan companies can borrow from global markets.
