Negative rating places Kenya debt plan at risk

Fitch Ratings has joined Moody’s in revising Kenya’s outlook to negative, making it even harder for the country to grab a debt payment review offer from G-20 countries.

However, the rating agency affirmed Kenya’s long-term external bond at B+, a highly speculatively status that will see investors charge the country an interest rate of around seven per cent.

The global rating agency, just like Moody’s before it, has cited the adverse effects of the Covid-19 pandemic, which is likely to slow down the economy and aggravate Kenya’s debt vulnerabilities.

A negative outlook means that the country’s rating might be downgraded in the next review should its fiscal position fail to improve.

Fear of being blacklisted by the credit rating company has seen the country shy away from a programme by the G-20 countries aimed at freezing debt obligations for developing countries for six months.

Negative rating results in the midst of tightening of financing conditions will see investors quote prohibitive costs for their money.

Kenya expects to borrow over Sh300 billion from foreign investors in the next financial year and will be keen to maintain the face of a borrower that has no trouble paying her debts.    

But it will even be more difficult for Kenyan corporates after Fitch downgraded the country Ceiling to ‘B+’ from ‘BB’.

Impact on corporates

A Country Ceiling of BB means that the best rating a Kenyan company can get is BB as corporates cannot be ranked above the country’s rating, which Fitch affirmed at B+. Fitch forecasts Kenya’s gross domestic product (GDP) growth to slow to one per cent this year due to a slowdown in global trade and services, which are expected to impact the export and tourism sectors.

“We expect more than a 30 per cent fall in Kenya’s agribusiness exports, including horticulture, tea and coffee, which accounted for approximately three per cent of GDP in 2019,” said Fitch in a statement.

Travel earnings and remittances, noted the rating agency, are also expected to fall by between 20 per cent and 40 per cent.

“Kenya’s public finances were already a rating weakness. We believe the coronavirus shock will delay any significant narrowing of the fiscal deficit until at least the fiscal year ending June 2022,” said the firm.

“As a result, we forecast general government debt to reach nearly 70 per cent of GDP in Financial Year 21, just above 2021 ‘B’ median and well above the end-FY12 level of 39 per cent.”

Moody’s had earlier revised Kenya’s credit rating outlook to negative, citing the country’s costly loans. By giving the country’s debt a negative outlook, the American agency also signalled the possibility of lowering it a notch lower to B3 in its next review.

However, just like Fitch, Moody’s maintained the country’s B2 credit rating, a junk bond that is speculative but which is better than B3.