Global ratings agency Moody's has upgraded Kenya's sovereign credit rating to B3, sending a strong signal to the financial markets that the country's near-term default risk has declined.

According to the global agency, Kenya's external liquidity has strengthened, and this is reflected in increased forex reserves, a narrower current account deficit as well as a more stable exchange rate of the Kenya shilling against major world currencies.

At the same time, Moody's upgraded the country's sovereign credit rating to B3 from Caa1 while revised the outlook to stable noting that the upward revision reflected a marked decline in near-term debt default risk, underpinned by improved access to both domestic and international financing.

"External liquidity has strengthened, reflected in higher foreign-exchange reserves, a narrower current account deficit and a more stable exchange rate," Moody's said in a statement on Tuesday.

This implies that that Nairobi's Improved domestic financing conditions could meangifully support President William Ruto's government to finance budget needs in the local market, thereby cutting dependence on external borrowing.

According to Moody's forecasts, Kenya's fiscal deficit will remain at 6 percent of the GDP while the stock of public debt is expected to average 67 per cent of the GDP.

National Treasury PS Chris Kiptoo noted that Moody's latest ratings showed the country's strengthened ability to meet its external obligations and reduced refinancing pressures.

"The stable outlook signals that Moody's expects these gains to be sustained over the medium term, backed by ongoing economic reforms and better access to international capital markets. Overall, this upgrade represents a notable vote of confidence in Kenya's macroeconomic management and financing strategy," Kiptoo said.

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