The credit profile of Kenya (B2 negative) is constrained by high and rising government debt as well as subdued government revenue, Moody's Investors Service said in a report.
The coronavirus shock will delay planned fiscal consolidation, which along with weaker real GDP growth, will contribute to the debt burden rising to 70% of GDP by the end of fiscal 2021 (year ending June 2021), from 48% of GDP in fiscal 2015.
"Kenya's weak track record of fiscal policy effectiveness points to risks that fiscal consolidation will occur more slowly, resulting in a more rapid increase in the debt burden," said David Rogovic, a Moody's Vice President - Senior Analyst and the report's co-author. "The country's twin deficits expose it to tighter global liquidity, which makes interest rate rises more likely, a risk the government is particularly sensitive to given its large borrowing requirements."
Kenya's credit strengths include its diversified economy with multiple growth sources and demonstrated resilience to shocks. Its deep capital market and mature financial sector relative to rating and regional peers affords the government greater capacity to issue domestically in local currency and with long tenors.
The negative outlook reflects the rising financing risks posed by Kenya's large gross borrowing requirements at a time when the fiscal outlook is deteriorating. Moody's would likely downgrade the rating if it were to conclude that the deterioration in Kenya's debt burden and debt affordability were likely to exacerbate liquidity risks, raising questions over the government's ability to refinance maturing debt.
The outlook would likely change to stable if Moody's were to conclude that the government was likely to maintain sufficiently broad funding options to meet its larger funding needs without a significant increase in borrowing costs.
Subscribers can access the report at: http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1252305
