Kenya: Moody's Downgrades Credit Rating on Rising Debt Levels, Expensive Loans

(file photo).
14 February 2018

Nairobi — Global credit rating Moody's has downgraded Kenya's credit rating to B2 from B1 owing to rising debt levels and deterioration in debt affordability.

The move comes days after Fitch credit rating agency revised Kenya's credit outlook to a positive at B+ score from a negative.

According to Moody's Kenya's efforts to improve revenue collection and inject fiscal discipline are unlikely to be effective enough to stem a weakening fiscal trend.

However, the agency maintains Kenya has a stable outlook.

"At B2, risks are balanced and supportive of a stable outlook. Kenya retains strong fundamental economic strengths with a relatively diversified economy that holds strong growth potential. Moreover, Kenya has a relatively deep capital market and mature financial sector, which affords the government some capacity to issue domestically in local currency and with longer tenors," the agency said.

Infrastructure projects that include the building of the Second phase of the Standard Gauge Railway from Nairobi to Kisumu, lower revenue collection and a rising cost of debt are likely to result in large fiscal deficit and keep government debt on an upward trend.

The agency sees Kenya's debt payment as a share of revenue to hit 20 percent in 2018 compared to 19 percent in 2017 from 13.7 in 2012.

"Kenya's government external debt, which stood at 31.6 percent of GDP as of June 2017, continues to shift away from concessional debt toward commercial and semi-concessional debt, leading to higher financing costs," the firm noted.

Kenya, the agency says, should push to streamline and modernize public spending in a bid to improve efficiency.

The rating's opinion is that the government will continue to face liquidity pressures due to a combination of large financing needs and an increased reliance on sources of financing with less predictable costs, in particular commercial external borrowing and short-term domestic debt.

Kenya's first Eurobond payment of $750 million (1 percent of forecast GDP) is due in June 2019, followed by a second $2 billion Eurobond maturing in 2024.

A syndicated loan in 2015 and worth $750 million was extended by six months in October 2017, with 90 percent of investors agreeing to extend the maturity to April 2018.

See What Everyone is Watching

More From: Capital FM

Don't Miss

AllAfrica publishes around 700 reports a day from more than 140 news organizations and over 500 other institutions and individuals, representing a diversity of positions on every topic. We publish news and views ranging from vigorous opponents of governments to government publications and spokespersons. Publishers named above each report are responsible for their own content, which AllAfrica does not have the legal right to edit or correct.

Articles and commentaries that identify as the publisher are produced or commissioned by AllAfrica. To address comments or complaints, please Contact us.