- The rating affirmation balances Kenya's relatively high government debt and external indebtedness and its narrow revenue base.
- This is against the authorities' commitment to fiscal consolidation anchored by the IMF programme and strong medium-term growth prospects.
The country is staring at increased external financial constraints following the latest downgrade in its creditworthiness by the credit rating agency, Fitch.
On Thursday, the agency revised Kenya’s long-term foreign currency issuer default rating to negative from stable, meaning it is at high risk of loan defaults.
According to the firm, the rating affirmation balances Kenya's relatively high government debt and external indebtedness and its narrow revenue base.
“This is against the authorities' commitment to fiscal consolidation anchored by the IMF programme and strong medium-term growth prospects,” Fitch says.
The ratings prompt multiple implications in the country’s pursuit of external funding under the fiscal consolidation policy, in a bid to cushion itself from runaway fiscal space.
Data by the National Treasury shows the country is facing a space of Sh720.1 billion in the current financial year.
The downgrade would mean increased interest rates for further loans amidst the high funding requirements, including the $2 billion (Sh283.6 billion) Eurobond maturing next year, weakening reserves, rising financing costs and the uncertainty regarding the fiscal trajectory.
Fitch further says the rating could pose challenges in the sovereign external debt service, as it would rise sharply to $4.3 billion in the financial year ending June 2024, up from $2.8 billion in the previous year.
"This is because the prevailing global tightening cycle could maintain unfavourable market conditions into 2024, thus a significant headwind for the authorities who plan to refinance the Eurobond in external markets," Fitch says.
Data from the Central Bank of Kenya (CBK) shows public debt hit $73 billion (Sh9.1trillion) in December last year, made up of $36 billion (Sh4.5 trillion) in domestic debt, $303 million (Sh37.9 billion) publicly-guaranteed debt and $37 billion (Sh4.7 trillion) in external debt.
The agency, however, says it is optimistic the government will meet its financing obligations through a combination of official lending, syndicated loans and a drawdown in reserves.
The downgrade comes months after Moody's Investors Service also downgraded the country's long-term foreign-currency and local-currency issuer ratings and senior unsecured debt ratings to B3.
It had previously been B2, with a negative outlook.
Moody's attributed the downgrade to the increase in government liquidity risks.
It further said that the rating is being placed on review for further downgrade prompted by the risk that the deterioration in Kenya's domestic financing conditions persists amid still constrained external financing options.