Kenya earns second negative credit outlook from debt stress

Global credit ratings agency Fitch has revised its outlook on Kenya as a long-term debt issuer from stable to negative.

In a statement issued Friday, the agency warns shocks arising from the Covid-19 pandemic will lead to a deterioration of Kenya’s budget funding position prompting a widened accumulation of debt.

“The revision of the Outlook on Kenya’s IDRs reflects Fitch’s view that the coronavirus shock will drive a sharp economic slowdown and deterioration in the budget deficit and government debt/GDP ratio in 2020, against a background of a weak track record of fiscal consolidation,” noted Fitch.

Fitch expects a sharp contraction in the growth of Kenya’s economy from recorded economic disruptions arising from the pandemic as it forecasts a slower one percent GDP growth in 2020.

“The widening of fiscal deficits will increase the sovereign’s external financing needs, which along with the fall in travel receipts and remittance flows will worsen Kenya’s external balances. Despite Kenya’s position as a net oil importer and a fall in total imports, Fitch forecasts the current account deficit to widen to 5.4% in 2020, from 4.5% in 2019,” added Fitch.

“Low levels of Foreign Direct Investments have meant that Kenya relies heavily on debt flows to finance its ‘twin’ current account deficit.”

Fitch has however retained Kenya’s sovereign rating of B+ sighting favourable economic rebound potential, a factor supported in part by relative macroeconomic stability and diversification in external financing sources.

Fitch however warns failure to stabilize government debt and delays to projected economic recovery will likely plunge Kenya into a negative credit rating as the current account and next external debt potentially widens.

These is Kenya’s second negative outlook in slightly over a month after Moody’s also undertook a similar adjustment to its profiling of Kenya as a sovereign debt issuer in May.

Moody’s pushed Kenya’s outlook as an issuer of debt to negative noting Kenya’s rising risks to meet borrowing requirements and debt payments.

On its part, the International Monetary Fund (IMF) revised Kenya’s debt distress from moderate to high as it projected higher budget deficits arising from shocks to internal revenue mobilisation and higher expenditures.

The recent actions on outlook has left the National Treasury in a dilemma on whether to accept proposed external debt restructures as ratings agency warn restructures could potentially lower Kenya’s ratings score as they are seen as defaults on debt.

Treasury Cabinet Secretary Ukur Yatani is presently considering debt relief proposals from G20 member countries which would see Kenya receive a moratorium on payments to the end of 2020 to its G20 creditors.


National Treasury Fitch Kenya's debt

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