Moody’s Investors Service in its annual report released this week, projected its rating of Kenya at B2, after it was lowered from B1 in February last year. The report pointed out that Kenya’s B2 stable credit profile is constrained by soaring government debt, weak institutional framework and low revenue levels. The economy’s strength, it said, included its diversified economy, favourable growth prospects and resilience to shocks.
The report also acknowledged Kenya’s strong capital market and mature financial sector compared to other countries in the region which gives the government better capacity to borrow domestically in local currency over a longer period. Based on these assumptions, Moody’s stable outlook on Kenya’s sovereign rating reflected ‘’expectation of relatively strong economic growth, counterbalanced by large fiscal deficits and debt,” said David Rogovic, a Moody’s Vice President – Senior Analyst and the co-author of the report.
At the close of the 2019 fiscal year, the government debt-to-GDP ratio stood at 62% of GDP, against 49% in 2015. At the same time, interest payments rose to 22% of government revenue from 15% over the same period. The Report recommended
effective implementation of structural fiscal reforms to reduce the fiscal deficit, debt and liquidity risks to improve Kenya’s credit profile while lax fiscal policy, leading to a sustained increase in government debt would lead to a downgrade. Strong external buffers like foreign exchange reserves for almost six months of imports mitigated the country’s vulnerability to a worsening in the external shocks.
