Kenya’s S&P rating upgraded: But what exactly is it? [Explainer]

Kenya’s long-term sovereign credit rating was upgraded by Standard & Poor’s from B- to B on August 22, 2025.

The agency cited reduced near-term external liquidity risks and a stronger foreign exchange buffer. The outlook was left at stable.

What an S&P sovereign rating is, how the grades work

A sovereign rating is an expert view on how likely a government is to meet its debt obligations on time. S&P and other credit rating agencies use letter grades to express that view.

The highest grades are AAA and AA, while the lowest are in the single letters such as C and D. Grades from AAA down to BBB minus are normally called investment grade.

Anything below that is often described as non-investment grade or junk.

A plus or minus attached to a letter shows finer differences inside a rating band.

Think of the rating as a shorthand used by international investors.

It is not a rule or a forecast of day-to-day economic life.

Rather, it helps lenders and funds judge the price and safety of buying a country’s bonds.

A higher grade usually means lower perceived risk and cheaper borrowing for the government.

A lower grade means higher perceived risk and more expensive borrowing.

READ ALSO: Moody's cuts South Africa's credit ratings to junk

Who feels the impact and how it affects everyday Kenyans

Rating changes primarily target governments and big investors, but the effects filter down.

If a government is seen as riskier and must offer higher interest to borrow, this can raise borrowing costs across the economy.

That makes loans, mortgages and business credit more expensive for households and companies.

Some institutional investors only buy investment-grade debt.

If a country is below that threshold, demand for its bonds may fall, pushing yields higher and raising the state’s interest bill.

Higher public borrowing costs can squeeze government spending or lead to higher taxes, both of which affect public services.

Currency movement is another channel.

If investors sell assets because of credit concerns, the local currency can weaken.

A weaker shilling increases the price of imported goods, such as fuel, food and medicines.

Banks and pension funds also pay attention because sovereign ratings feed into risk assessments and regulatory metrics.

READ ALSO: Here is what's next for Kenya after abandoning $300M early payment for $2B Eurobond

What moves the rating?

S&P considers a mix of domestic and global factors.

Important items include the government’s fiscal position and debt levels, the size of foreign exchange reserves, export performance and remittance flows.

The mix of debt matters too, for example whether it is short term or long term and whether it is owed to market investors or official lenders.

Political stability and the quality of public institutions are relevant because predictable policymaking builds investor confidence.

Contingent liabilities such as guarantees to state-owned enterprises are checked for hidden risks.

READ ALSO: Fitch downgrades Saudi credit rating over military tensions

Global conditions, including world interest rates and investor appetite for emerging markets, also shape ratings.

Useful indicators to watch are the Treasury’s borrowing plans, monthly foreign exchange reserve reports and official statements on fiscal strategy.

These signals help explain why agencies change their view and why such changes can matter for household budgets and business planning.