Fitch rates Kenya at B+ with negative forecast

In giving the rating on senior unsecured foreign currency bonds, Fitch said this was supported by Kenya’s strong potential for growth and its resilience to external shocks.PHOTO: COURTESY

International ratings agency Fitch has affirmed Kenya’s long-term debt default ratings at B+, but with a negative outlook.

In giving the rating on senior unsecured foreign currency bonds, Fitch said this was supported by Kenya’s strong potential for growth and its resilience to external shocks.

However, the firm said the rating is constrained by the country’s low Gross Domestic Product (GDP) per capita, rising debt, sizeable current account deficit and political risk.

Kenya’s large and persistent fiscal deficits have led to a steady increase in gross Government debt to 55 per cent of GDP in the 2015-16 financial year, up from 42 per cent in 2013-14.

Fitch forecasts it will rise further to 57 per cent at the close of the 2016-17 financial year, just above the ‘B’ median of 56 per cent. On debt, it said sustainability would depend on the country’s ability to continue reducing its fiscal deficit while maintaining high levels of economic growth. Fitch forecasts a fiscal deficit of 7.1 per cent of GDP for the year ending June 2017, down from 7.5 per cent in 2016.

However, it sees the forthcoming elections as a potential threat. It is also skeptical that interest rate caps will increase overall credit by increasing demand. Credit to the private sector grew at 4.8 per cent year-on-year in October 2016, down from 19.5 per cent in October 2015.

In 2017, it is projecting 6 per cent economic growth against 5.8 per cent for 2016, but points that uncertainty around elections are a downside risk, “although this is balanced against Kenya’s history of under-executing capital expenditures”.

In the third quarter ended September, Government data showed economic growth slowed to 5.7 from 6.2 per cent in the second quarter.