Credit ratings agency Moody's is planning to downgrade Kenya's credit- worthiness as the government wavers in putting in place measures to deal with persistent budget deficits and rising public debt.
Moody's told The EastAfrican that Kenya's economic and political situation is under review for a potential downgrade of the country's credit status, but declined to issue timelines on when such a policy decision would be made public.
"Kenya's B1 rating is on review for downgrade," said Abi Jones, a communications strategist at Moody's.
If Kenya's credit rating is downgraded, then the government will pay higher interest rates on any amount it borrows, since lenders will be concerned that they will not be repaid in future.
Kenya is currently spending 19 per cent of its revenue on interest payments, up from 10.7 per cent five years ago. The country's economy has been weighed down by increased government borrowing that has pushed the total public debt to Ksh4.4 trillion ($44 billion). The situation has been worsened by additional spending on the repeat presidential elections and unplanned spending meant to fulfil pledges made to voters during the campaign period.
In June, Kenya's debt-to-GDP ratio stood at 56.4 per cent compared with Tanzania's at 38.3 per cent, Uganda's 39.9 per cent and Rwanda's 35.8 per cent.
Moody's expects Kenya's debt-to-GDP ratio to continue rising due to persistent high budget deficits and borrowing costs.
The International Monetary Fund said Kenya's public debt has increased in recent years and while the country's risk of external debt distress remains low, its vulnerability to export shocks has increased.
Half of Kenya's public debt is owed to external creditors.
A cross-section of economists said the government's borrowing spree has plunged the economy into huge debts and is likely to compromise its credit rating.
"We have borrowed too much as a country and our credit rating is likely to be compromised," said Dr Samuel Nyandemo, a senior lecturer at the University of Nairobi's School of Economics.
According to senior lecturer in the School of Business at Maseno University Scholastica Odhiambo, most of the resources meant for development are being used to service public debt.
"The current statistics are not good. Borrowing is detrimental to the country. It also needs to be clear which projects the proceeds are being used for because going by the noise made about the earlier Eurobond, we need to be very cautious," said Dr Odhiambo.
Read the original article on East African.
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