Moody’s warns Kenya rating still under debt threat

Rating agency Moody’s has warned Kenya is still not yet out of the woods with its credit rating still under threat from rising debt levels.

The firm, however, said a diversified economy had helped the country stay afloat.

Kenya’s credit profile (B2 stable) is constrained by high and rising government debt as well as subdued government revenue and low institutional strength, according to Moody’s Investors Service annual report.

“Credit strengths include its relatively diversified economy, which sustains high growth and has proved resilient to shocks as well as a sound financial sector,” Moody’s said. The report titled “Government of Kenya -- B2 Stable, Annual Credit Analysis” is an update on the markets but does not constitute a rating action.

Gradual reduction

“The Government debt burden has increased consistently and we expect it to reach 60 per cent of GDP over the medium-term,” said Moody's Vice President, Senior Credit Officer and co-author of the report Lucie Villa.

“Under our central scenario, there will be a gradual reduction in the primary deficit and robust nominal growth that will partly compensate higher interest payments,” said Ms Villa.

Moody’s expects Kenya’s growth rate to return to its long-term average of around six per cent in the medium-term thanks to a recovery in business and investor confidence and the fading effects of the drought.

Kenya’s low institutional strength stems from its low ranking on the Worldwide Governance Indicators. High statistical transparency supports policy decision-making, but fiscal policy effectiveness and credibility have weakened.