Global ratings agency Moody's has revised Kenya's outlook to "positive" from "negative" attributing the shift on easing of the country's liquidity risks as well as improving debt affordability going forward.

Policymakers in East Africa's biggest economy have been grappling with a huge debt burden that has left the government increasing taxes on already overburdened citizens.

Since June last year, Kenya has experienced tax revolt with the public and organizations expressing their displeasure against various forms of proposed tax increases.

According to Moody's however, the country's domestic financing costs have started to decline amid a monetary easing cycle. The agency projects that this trend is expected to continue if President William Ruto's government effectively manages its fiscal consolidation, thereby enabling opportunities to tap into external funding.

"Given low inflation and a stable exchange rate, there is potential for further reductions in domestic borrowing costs as past monetary policy rate cuts pass through to lower long-term borrowing costs," Moody's said in a statement on Friday.

Moody's noted that a new International Monetary Fund program is set to rev up Kenya's external financing options while other multilateral lenders such as the World Bank will continue to play crucial financing roles in the months ahead.

The agency affirmed Kenya's local and foreign-currency long-term issuer ratings at "Caa1", citing still elevated credit risks driven by very weak debt affordability and high gross financing needs relative to funding options.

"The affirmation of Kenya's Caa1 rating reflects still elevated credit risks driven by very weak debt affordability and high gross financing needs relative to funding options. Fiscal policy effectiveness is limited by weak institutions, policy unpredictability and high corruption levels," Moody's observed.

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