Nairobi — Fitch Ratings has downgraded Kenya's credit rating to B from B+ citing the country's persistent twin fiscal and external deficits, high debt, and deteriorating external liquidity.
The global rating agency in its rating downgrade also highlighted the country's high external financing costs, which presently constrain access to international capital markets.
The government faces elevated external debt service obligations in 2023-2024, including the maturity of a USD2 billion(Sh246.1billion) Eurobond in June 2024, which combined with high current account deficits, which Fitch says will lead to sustained pressure on international reserves.
During the year, successive shocks of the coronavirus pandemic and the Russia-Ukraine war contributed to a widening current account deficit to 5.2 per cent of GDP and lower international reserves.
Fitch forecasts the current account deficit to grow to 5.9 per cent of GDP in 2022 and to remain at broadly the same levels in 2023 and 2024.
As a result of the high account deficit, the international reserves position has fallen to USD7.2 billion as of November 2022, down from USD9.5 billion at the end of 2021.
"Despite IMF and other official disbursements, we forecast reserves to remain under pressure reaching USD7.4 billion at end-2023," said Fitch.
Further, the rating agency forecasts Kenya's external debt service to rise to 24.8 per cent of current external receipts in 2024, up from 16.6 per cent in 2023, owing to the June 2024 USD2 billion Eurobond payment.
As for fiscal consolidation, strong revenue performance helped the fiscal deficit narrow to 6.2 per cent of GDP in FY22, down from 8.2 per cent in FY21.
The improvement came from a combination of strong revenue performance after several years of declining revenue and a fall in capital expenditure.
"We forecast a fiscal deficit of 6.1 per cent of GDP in FY23, above the forecast 3.5 per cent 'B' median," said Fitch.
As for high debt and interest payments, Kenya's general government debt fell to 67.4 per cent of GDP in FY22 from 67.7 per cent in FY21.
"Strong growth and continued fiscal improvement are likely to see government debt continue to fall, but to remain above 60 per cent of GDP, and the projected 2024 55 per cent of GDP 'B' median, over the medium term" said Fitch.
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Overall, Fitch expects Kenya's growth to remain steady in 2023 and 2024 following strong post-pandemic growth recovery.
"We forecast real GDP growth of 5.4 per cent in 2022, down from 7.5 per cent in 2021. Fiscal tightening, high inflation, and slower global growth will present headwinds in 2023; although improving asset quality may support growth through higher private sector credit growth," it said.
