In the new financial year that starts in on July 1, Kenya will need to pay a total of Sh630.1 billion. ILLUSTRATION | NATION MEDIA GROUP Kenya’s appetite for debt has come to haunt it at its time of need after global rating agency Moody’s gave it a negative credit rating.
The downgrade has handed the East African country a severe blow coming at a time when the National Treasury is going to rely heavily on external borrowing to finance its ballooning budget .
In a briefing to investors on Friday, Moody’s Investor Service revealed that it had changed Kenya’s ratings to negative from stable due to the rising financing risks posed by the country’s large gross borrowing requirements.
This is the worst rating Kenya has had in the last five years. It means that Kenya will now get loans more expensively than before and there will be fewer lenders, who will be fighting to give Kenya money due to the risk of default.
NEGATIVE OUTLOOK
Until the Covid-19 pandemic struck Kenya, the main reason for continued lower rating was the ballooning public debt driven by a high fiscal deficit as well as weak financial institutions.
Kenya has been on a borrowing spree over the last eight years to plug its budget shortfall, as well as finance the Jubilee government’s ambitious infrastructure projects.
This has seen the country borrow at least Sh550 billion every year from both international and local markets. This translates to about Sh45 billion a month or Sh1.5 billion every day.
“The negative outlook reflects the rising financing risks posed by Kenya’s large gross borrowing requirements, which include armotisation of bilateral debt and the need to refinance a large stock of short term domestic deb,” Moody’s said in its briefing dated May 7.
FISCAL POLICY
The downgrade comes at a time when the fiscal outlook for Kenya is worsening due to erosion of its revenue base and a debt structure that exposes its fiscal metrics to exchange rate and interest rate shocks.The agency says that while Kenya does not face acute financing pressures, the severe tightening of financial conditions will challenge the government’s ability to meet larger gross financing needs, without an increase in borrowing costs that would threaten medium-term fiscal consolidation efforts.Mr Tony Watima, an economist, said this latest downgrade will hurt the country more given that even before Covid-19, Kenya’s fiscal policy was ‘already leaking’.“Our fiscal space had been consumed […]
