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October 19, 2018

Kenya’s due debts, repayment cause for concern - Moody’s

Treasury Cabinet Secretary Henry Rotich presents the budget in Parliament on June 14, 2018. /JACK OWUOR
Treasury Cabinet Secretary Henry Rotich presents the budget in Parliament on June 14, 2018. /JACK OWUOR

Global credit rating agency Moody’s has named Kenya among countries that will struggle to repay international bonds which are fast maturing. 

In the latest analysis released on Wednesday, Moody’s Investors Service said international bonds maturing starting next year will expose Kenya, Armenia, Hondurus, Pakistan and Sri Lanka to costly debt financing. 

“Sri Lanka, Armenia, Pakistan in particular and to a lesser extent, Honduras and Kenya will prove the most exposed to more costly debt financing as their international sovereign bonds mature in 2019 and 2020,’’ Moody’s said.

 The study titled ‘Sovereigns— Frontier markets: Maturing international bonds contribute to exposure to financing risks’ warned that if the situation persists, debt affordability for those countries will be weakened.

 Moody’s report reviewed international bond issuance from frontier market governments, defined as governments with a rating of Ba1 or lower and relying on concessional financing for more than 40 per cent of their external financing needs.

 This negative outlook on Kenya’s debt repayment is likely to see Moody’s lower Kenya’s creditworthiness in future, forcing lenders to deny the country loans or lend at higher interest rates. 

The firm maintained Kenya’s credit scores at B2 stable. It allocated the country this score in February after putting its earlier score of B1 on downgrade review in October last year.

Moody’s report collaborates another one by World Bank that listed Kenya among 14 sub-Saharan countries that will struggle to pay their loans beyond 2021.

 Kenya is expected to start servicing the first trench of Sh280 billion Eurobond taken in 2014 in June next year. The first five-year tranche expected to cost taxpayers Sh97.71 billion with the second 10-year trench of Sh400 billion maturing in 2024. 

In February this year, Treasury raised Sh202 billion in another sovereign bond issued in two equal tranches of 10 and 30 years for an annual interest rate of 7.25 per cent and 8.25 per cent respectively.

 According to Moody’s, debt refinancing for international sovereign bonds is expected to jump to around $7-9 billion (Sh700-900 billion) every year, mostly driven by Sub Saharan Africa governments. 

It added that international bonds now account for a sizeable share of economy-wide external debt and total government debt. Kenya is expected to spend up to Sh870 billion in debt servicing.

 ‘’Sharp and sustained rises in financing costs would, therefore, hurt the credit profiles of these countries,’’ Moody’s said.

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