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Rating blow for Kenya over debt

By Otiato Guguyu | Published Thu, February 15th 2018 at 00:00, Updated February 14th 2018 at 21:39 GMT +3
For every Sh10 collected, Sh2 goes to servicing debt. [Photo: Courtesy]

Global rating firm Moodys has cited Kenya’s spiralling debt as the reason for downgrading the country’s credit score rating.

The rating firm said for every Sh10 the Government collects in tax revenue, Sh2 goes to servicing debt, attesting to the unsustainable nature of the country’s debt burden.

This is a departure from 2013 when the amount that went into servicing debt was estimated at Sh1.30 for every Sh10 collected by the Kenya Revenue Authority (KRA).

Moodys said it had downgraded the country’s credit ratings for both local and foreign loans, arguing that debt was growing faster than the gross domestic product (GDP) and that new loans used to pay old debts were becoming more expensive.

“On February 8, 2018, a rating committee was called to discuss the rating of the Government of Kenya. The main points raised during the discussion were: The issuer’s fiscal or financial strength, including its debt profile, has materially decreased. The issuer has become increasingly susceptible to event risks,” explained Moodys in a statement.

Moody’s forecasts government debt to increase to 61 per cent of GDP in the next fiscal year (2018/19), crossing over the Sh5 trillion mark from 56 per cent of GDP in the 2016/17 financial year and 41 per cent of GDP in 2012.

Moodys downgraded Kenya’s overall ratings to B2 from B1, local debts from B2 to B3, and foreign loans from Ba2 to Ba3.

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These are 11 grades below America’s triple-A ratings, which are classified as non-investment grade speculative or junk bonds.

The rating agency, which has in the past been dismissed by National Treasury Cabinet Secretary Henry Rotich as a ‘desktop analysis’, has differed with S&P and Fitch, which have been contracted by the Government to do a review of Kenya’s debt position.

Wasteful spending

Fitch and S&P both said Kenya’s long-term debt was stable at B+, meaning the country was less likely to default on its debt obligations.

The ratings come at a crucial time as Treasury shuttles between the United Kingdom and the United States to market a $1.5 (Sh151 billion) and $3 billion (Sh303 billion) eurobond.

The eurobond roadshow is expected to test investors’ appetite and the rates at which they will be willing to take up the dollar debt.

Treasury said it would reform spending by using ‘zero-based budgeting’ to reduce wasteful spending, better management of the public wage bill, and increased planning and budgeting of public investments. It also plans to focus on improving the efficiency of tax collection.

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