Fitch likely to further downgrade Kenya's borrowing power

Kenya is among countries whose creditworthiness is likely to be further lowered after accepting the G20 debt relief programme. 

Fitch Rating head of the Middle East and Africa sovereign ratings, Jan Friederich told Reuters that his agency is likely to downgrade any country that took up G20 debt relief offer. 

Kenya recently made a sudden U-turn on G20 debt relief measures to defer Sh75.5 billion ($690 million) in debt payments to help it weather the impact of the Covid-19 pandemic on the economy.

Early this year, Kenya received  a Sh32.9 billion loan repayment break from the Paris Club of international creditors and further Sh40.6 billion from China under the G-20 Debt Service Suspension Initiative (DSSI) framework. 

The credit downgrading hint by the Fitch confirms Kenya's earlier fears to the debt relief measure and the demerits of the initiative hyped by the United Nations allied institutions.

Kenya had turned down the G20 initiative in May saying the terms were too restrictive and it also feared the impact that debt relief might have on its  credit rating.

It argued that the deal limiting countries’ access to international capital markets during the standstill could hinder Kenya’s ability to finance its budget deficit later in the year.

In June 2020, Fitch Rating revised Kenya's outlook for the Long-Term Foreign-Currency Issuer Default Rating (IDR) to Negative from Stable and affirmed the IDR at 'B+'.

Last week, the rating firm chopped Ethiopia’s credit score by two grades after the country signalled it could be the first with an international government bond to use a new G20 ‘Common Framework’ plan.

It lowered Ethiopia's IDR from 'B' to 'CCC', signalling there is a real possibility of default on debt owed to private creditors.

The new rating portrays the worsening of the country’s ability to meet its debt obligations.

The scheme, which is open to over 70 of the world’s poorest countries, encourages their governments to defer or negotiate down their external debt as part of a wider debt relief programme.

“It would be likely that any other countries applying under the G20 Common Framework would be considered along the same lines as Ethiopia,” Friederich said. 

The only reason not to downgrade he said would be if the agency was confident that private-sector creditors who hold the bonds that credit ratings apply to were not going to be affected.

''That seems unlikely, however, in the most debt-strained cases,'' he said. 

Along with Ethiopia Fitch currently has the likes of Congo, Gabon, Mozambique and Angola in the default danger zone CCC rating category.

Kenya, Ghana, Cameroon and Cape Verde are likely to join the list after IMF ranked them as at ‘high risk’ of debt distress.