Kenyans tell off Moody's on poor credit rating

They want the rating firm factor the country's vast resources in the survey

In Summary
  • It shows Kenya is struggling to increase revenue and manage its finances better.
  • Moody's noted that, in the context of heightened social tensions, significant revenue-raising measures are unlikely to be introduced shortly.
Debt questions
Debt questions

Financial experts have joined Kenyans in dismissing the low credit rating of the Kenyan government by Moody's Investors Service.

Debt management expert Jerome Ndiya termed the poor ratings by international credit rating agencies as a systematic financial polarisation structured by sharks in the global financial system. 

"Poor countries are treated unfairly in the global financial markets, making it difficult for regional countries to access much-needed credit to spur economic development,'' Ndiya said. 

He wants the agency to come clean on the perimeters they follow in establishing the creditworthiness of countries in the global South.

What factors do they consider? Do they know the value of Kenya's natural resources or do they simply analyse budget statements and revenue collection measures? This must change,'' he said. 

An economist Susan Mwihaki says there is a need for a standard credit rating mechanism to address chronic low ratings by global firms, exacerbating the continent's public debt, and threatening the sustainability and access to lines of credit.

"The unfair credit rating must be relooked to achieve a just financial market,'' she said.

The news of Moody’s revising the country's local and foreign-currency long-term issuer ratings and foreign-currency senior unsecured debt ratings to Caa1 from B3, maintaining a negative outlook also triggered conversation on social media platforms.

"The credibility of these international credit rating agencies is questionable. They are just the creation of deep-pocketed loan sharks who lend to the country and later lower credit profile to milk poor countries,'' an X user Daniel Mugo posted.

"Someone must tell Moody's S&P and Fitch that the era of manipulating the global financial market in favour of their masters is coming to an end. They should come clean on how they evaluate our debt profile,'' another X user Brian Okello posted. 

Young people advocating for social economic change in Kenya have in recent times put international credit and rating agencies in sharp focus, with the International Monetary Fund (IMF) for instance being blamed for the high tax regime in the country. 

Last month, Ghana's Minister for Finance Dr Mohammed Amin Adam exclusively told the Star that top global credit rating agencies do not factor Africa's vast resources into their analysis, poorly ranking countries hence higher interest rates that have condemned the continent into an unending debt cycle.

He regretted that only two African economies are currently rated at investment-grade levels, implying high interest rates and low borrowing volumes for the continent.

The Caa1 handed to Kenya depicts a junk rating which shows a country or organisation has a high chance of defaulting in case of any shocks.

According to the report, the downgrade is largely driven by the Kenyan government's recent decision to abandon planned tax increases in favour of expenditure cuts.

It shows Kenya is struggling to increase revenue and manage its finances better.

Moody's Investors Service vice president and senior credit officer Sovereign Risk Group David Rogovic said that this shift in policy has significant implications for the country's fiscal trajectory and financing needs.

“The negative outlook reflects downside risks related to government liquidity. Our updated forecasts continue to assume a narrowing of the fiscal deficit through spending cuts, but at a more gradual pace than we previously assumed,” said Rogovic

He added that larger financing needs and an increase in borrowing costs would amplify liquidity risks.

“In particular, slower fiscal consolidation would risk constraining external funding options even more, including diminishing support from multilateral creditors which have been the largest source of external financing since 2020,” he added.

Moody's noted that, in the context of heightened social tensions, significant revenue-raising measures are unlikely to be introduced shortly.

Consequently, the fiscal deficit is expected to narrow more slowly, with debt affordability remaining weak for an extended period.

This scenario increases liquidity risk amid uncertain external funding options.

Kenya had initially planned to implement tax increases as part of its 2024 Finance Bill, which aimed to raise Sh346 billion (1.9 percent of GDP).

However, due to social unrest, the government cancelled these measures, opting instead for spending cuts amounting to Sh177 billion.

The new strategy increases the fiscal deficit to 4.6 percent of GDP, compared to the original 3.3 percent target.

Moody's now expects the fiscal deficit to average 4.4 percent of GDP for fiscal years 2025 and 2026, a slower pace of consolidation than previously forecasted.

This expenditure-based approach provides less support for debt affordability. The interest-to-revenue ratio is projected to rise to 33 percent in fiscal 2025 from 30 per cent in fiscal 2024, indicating significant fiscal constraints.

Although domestic borrowing costs are expected to decline gradually, debt affordability will remain weaker than previously anticipated due to larger fiscal deficits and lower revenue.

The government's plan to cut spending faces significant implementation risks. Over half of the government's spending in fiscal 2025 is allocated to Consolidated Fund Services, which includes non-discretionary obligations.

Proposed measures include dissolving 47 state corporations, suspending new public sector hiring, and conducting payroll audits.

Moody’s says, however, significant cuts will still be needed in discretionary areas like operations, maintenance, and development spending, potentially impacting economic growth.

Additionally, Kenya is vulnerable to external shocks, such as extreme weather events, which could necessitate increased government spending on emergency relief and infrastructure repairs.

Larger fiscal deficits will increase Kenya's borrowing requirements, adding pressure on domestic borrowing costs and amplifying liquidity risks.

Moody's forecasts that increased domestic borrowing will keep interest rates elevated.

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