The African Peer Review Mechanism (APRM), an agency of the African Union, has faulted global ratings agency Moody's last week’s decision to revise Kenya’s economic outlook from “negative” to positive.

According to APRM, Moody’s aggressively skipped from ‘negative’ to ‘positive’ without transitioning through a ‘stable’ outlook in an attempt to reverse its premature rating decision made in July 2024.

“The change is an admission, in remedy, that a negative outlook was an incorrect rating. This rating action was a reversal of Moody’s premature rating action on 08 July 2024 which was largely driven by protests in Kenya over the proposed Finance Bill,” APRM noted in a statement on Monday.

The AU agency explained that Kenya’s July 2024 rating downgrade by Moody’s was speculative, as midterm review data on the Appropriation Bill, the spending allocations, the final budget, the finance bill, and the new cabinet had not yet been released when it made its announcement. 

While projecting improvement in the country's economy last week, Moody’s cited a potential ease in liquidity risks and continued improvement in debt affordability over time.

The agency noted that domestic borrowing costs were declining progressively since June last year owing to monetary easing coupled with strong demand for bonds and the trend would continue if the government implemented fiscal consolidation to achieve small primary surpluses to gain better access to concessional financing and market funding.

It affirmed Kenya’s local and foreign-currency long-term issuer ratings at “Caal”, reflecting elevated credit risks driven by very weak debt affordability and high gross financing needs relative to funding options.

The ratings agency added that a new International Monetary Fund program would enhance the country’s external financing with other multilateral creditors including the World Bank will remain significant sources of financing, even without IMF funding.

According to the APRM, which was formed in 2023 to review governance across the member states, it was not the first time Moody's erred in its analysis. In January 2023, Moody’s made a similar mistake for Nigeria, observed APRM.

At the time, Moody’s downgraded Nigeria from ‘B3’ to ‘Caa1’ noting that the government’s fiscal and debt position was expected to deteriorate further under the new administration. 

Moody’s later reversed the outlook from ‘stable’ to ‘positive’ in December 2023, citing positive economic policy developments in the country proving premature and erred ratings.

The APRM added that such rating actions are irresponsible and detrimental and lead to unnecessary costs to governments, triggering Eurobond sell-offs, and sustaining a negative sentiment on African instruments. 

“Moody's is strongly encouraged to be diligent and wait for the complete term review data before taking rating actions rather than taking speculative and premature rating actions based on missing or incomplete Information,” APRM noted.

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