Kenya risks defaulting on debt - Agusto & Co

The agency has estimated the country's public debt to GDP ratio to hit 76%

In Summary
  • The country's current total public debt is Sh7.7 trillion
  • It has projected the economy to expand at 3.8 per cent in 2021
Graph showing Kenya's surging debt.
DEBT: Graph showing Kenya's surging debt.

Pan African rating agency, Agusto & Co has termed Kenya's debt situation as 'moderately high risk', affirming creditworthiness at B+.

In an analysis of Kenya's economy, the Nigeria-headquartered rating firm said the country's elevated debt levels due to its budget deficit, with a significant impact on interest burden has increased vulnerability to internal and external shocks.

It also blames Kenya's shaky creditworthiness to GDP contraction in 2020 on account of the Covid-19 pandemic as well as the deterioration of the Kenyan Shilling against major trade currencies.

Yesterday, the shilling traded at 110.79 units against the US dollar and 150.92 units to the Sterling Pound, compared to 110.68 and 149 last week respectively.   

The report by the credit rating firm shows the shilling dropped five per cent against the United States Dollar  Sterling Pound (by eight per cent)  and Euro (by 12 per cent) in the period under review.

This is in addition to the marginal rise in inflation and unemployment levels in the country.

Average inflation rose marginally to 5.29 per cent during the year from 5.2per cent  in the prior year driven by higher food prices and transportation costs.

''We project inflation to remain in the single-digit territory around six per cent hinged on the expected increase in food prices as well as rise in the global price of crude oil impacting local petrol pump prices,'' the report reads in part. 

Last year, the Kenya National Bureau of Statistics (KNBS) indicated that the Covid-19 pandemic accelerated the level of joblessness, doubling it to 10.4 per cent from 5.2 per cent.

The weak credit rating is a dent in Kenya's ability to borrow especially in the external debt market as it will be seen as a potential defaulter. 

According to the rating firm, those willing to lend to Kenya are likely to impose high interests or table high demands to cover for their cash in case of default. 

Kenya's current total public debt is Sh7.7 trillion, having increased by six folds since 2013 when President Uhuru Kenyatta's regime came to power. 

The agency has estimated the country's public debt to GDP ratio to hit 76 per cent, the highest ever and rising debt service to revenue of almost twice the IMF’s threshold.

''We believe that the country could attain debt distress levels, which increases her vulnerability to external shocks,'' the report reads.

The firm has welcomed the three-year $2.4 billion low-cost financing agreement between IMF and Kenya in February 2021 to support the Nation’s Covid-19 response and help moderate its debt service cost.

In addition, Kenya is poised to receive circa $740 million from the $650 billion Special Drawing Right (SDR) allocations of the IMF in Q3’2021, which we expect will boost the Nation’s reserve.

Furthermore, the continued reopening of the Nation’s economy as well as the resultant rise in commercial activities in 2021.

The rating agency has projected Kenya's economy recover to 3.8 per cent this year on account of the resilient agricultural sector, improvement in hospitality, tourism and ongoing vaccination rollouts and easing of the government’s lockdown measures.

This is the lowest growth projection my any entity for Kenya's recovering economy which registered a negative growth last year. 

Last week, World Bank revised Kenya's growth prospects upwards to five per cent from 4.5 per cent projected in March.

The International Monetary Fund (IMF) and the Kenyan government expect the economy to expand by at least six per cent.

Agusto & Co was 2019 ranked the best credit rating agency in Africa by Pwc and releases annual continental banking and corporate report.