Kenya's rating put on review for downgrade over rising debt

Global rating agency Moody’s has put Kenya under review for possible downgrade.

Global rating agency Moody’s placed the B1 long-term issuer rating of the government of Kenya on review for downgrade, on the back of the country’s rising debts.

This may see Kenya’s creditworthiness lowered to B2, hindering the country's ability to secure loans from international fund organizations.

According to Moody’s, the decision to place the rating on review for downgrade was prompted by high borrowing costs that continue to drive government indebtedness higher, government liquidity pressures as well as Uncertainties weigh over the future direction of economic and fiscal policy.

Moody's expects that Kenya's government debt burden, which has risen to 56.4% of GDP in June 2017, up from 40.5% five years ago, will continue to rise due to persistently high primary deficits and borrowing costs.

“Pressures on the government primary balance, which posted a deficit of 5.3% of GDP in the latest fiscal year ending June 2017, come from elevated development spending and weak revenue performance,” noted the agency adding that Kenya’s debt-to-GDP may surpass the 60% mark by June 2018 unless a decisive policy response is introduced.

Moody’s noted that due to the erosion in government revenue intake in the last five years and increased recourse to debt from private sources on commercial terms, government debt affordability has deteriorated with statistics showing that in the latest fiscal year the government spent 19 per cent of its revenues on interest payments, up from 10.7 per cent five years ago.

The agency lastly noted that it would downgrade the rating if the review were to conclude that Kenya's government debt and financing needs, and hence its fiscal strength and liquidity position, have eroded to levels no longer consistent with B1 rated peers.

JOIN OUR PULSE COMMUNITY!

Eyewitness? Submit your stories now via social or:

Email: news@pulselive.co.ke