Fitch Ratings has affirmed a B+ rating on Kenya’s long-term borrowing with a negative outlook, the New York-headquartered global credit rating firm said in a statement late Thursday.
The agency cited possibility of a rise in current expenditure to fund the August 2017 general election and under-performing revenues as risks to stable credit outlook. The country’s short-term Issuer Default Rate has also been affirmed at ‘B’, senior unsecured foreign-currency bonds at ‘B+’, while debt ceiling is at ‘BB-’
“Kenya’s ratings are supported by its strong growth potential and resilience to shocks, favourable business climate and only moderate exposure to commodity prices,” Fitch said. “However, its ratings are constrained by its low GDP per capita, sizeable twin budget and current account deficits and rising public and external debt ratios, as well as by political risks.”
About 55.1 per cent of Kenya’s national wealth, technically referred to as debt to GDP ratio, was in arrears in June this year, data from the Quarterly Economic Review report by the Central Bank indicate. This was a jump from 42 per cent in June 2013, about two months after the Jubilee administration took the reins of power.
Fitch projects debt to GDP ratio to rise to 57 per cent at end of this financial year in June 2017. This follows a 23.13 per cent growth in total public debt to Sh3.62 trillion in June 2016 from Sh2.94 trillion a year earlier, data from the Treasury shows.
This is largely driven by continued borrowing by the National Treasury to fund budget deficit as a result of rising public investment in capital-intensive infrastructure projects.
“Kenya’s debt sustainability will rely on its ability to continue to reduce the primary fiscal deficit and to maintain high levels of economic growth,” analysts at Fitch said.
Fitch, however, says the country is making some “headway” in cutting budget deficit which was estimated at 9.3 per cent of the national wealth by Treasury CS Henry Rotich when he presented the Budget for 2016-17 financial year on June 8.
The deficit, the rating agency said in the report, is likely to drop to 7.1 per cent of the GDP from 7.5 per cent last year.
“The possibility of under-performing tax revenues and increased current expenditures around the August 2017 general elections represent a downside risk, although this is balanced against Kenya’s history of under-executing capital expenditures,” Fitch said.
The Kenya Revenue Authority collected Sh367.41 billion in four months through October, Rotich said in the Statement of Actual Revenues and Net Exchequer Issues last month.