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Treasury shrugs off credit downgrade as debt haunts Kenya

The Treasury has downplayed the impact of Kenya’s poor ratings on its debt repayment capability, accusing global rating agencies of “subjectivity.”

This comes as Fitch, one of the three global rating firms, slashed the country’s credit score to the ‘highly speculative’ rating of B from B+, which is ‘speculative.’

“The variations in the credit rating scores of the three agencies show the influence of subjectivity and the perceptions generated in the qualitative analysis,” said Treasury in its Monthly Debt Bulletin for October 2022.

The Treasury noted that the sovereign credit ratings for Kenya by October had been relatively stable, standing at B with a stable outlook, B+ with a negative outlook and B2 with a negative outlook by Standard & Poor’s (S&P), Fitch and Moody’s, respectively.

However, Fitch, which is one of the rating agencies contracted by the Government of Kenya, on Wednesday downgraded the country’s score to B with a stable outlook.

A credit rating of B means that Kenya has a “material risk” of defaulting on some of its debt obligations, which Fitch fears is possible given Kenya’s high external debt obligation at a time liquidity in the global financial market has dried up.

Fitch noted the elevated debt repayment obligations in the upcoming financial year including the maturity of a $2 billion (Sh245.6 billion) Eurobond in June 2024 amid high financing costs in the international market as some of the reasons for the downgrade.

Tight liquidity in the global financial market forced Kenya, like a number of African countries, to cancel plans to issue an Sh115 billion ($1 billion) Eurobond, opting to borrow from a syndicate of commercial banks after it received bids priced at a high of 12 per cent.

In 2017, former Treasury Cabinet Secretary Henry Rotich dismissed then Moody’s possible downgrade of the country’s credit scores over rising debt as “desktop analysis.”

Mr Rotich noted that the country only has a contract with Standard & Poor’s (S&P) and Fitch to periodically gather data from Treasury.

“Moody’s is just doing the freelance rating. We only have two ratings that we’ve contacted so far,” he told journalists at a breakfast meeting on Thursday morning as he termed the agency’s rating as “desk analysis”.

Despite being critical of credit ratings, Kenya has ambitions of graduating to investment grade (BBB-) and attracting cheaper debt from global markets by reducing its debt appetite, improving exports and expanding its dollar reserves, said Treasury in the bulletin.

President William Ruto’s administration also plans to promote economic growth to boost GDP per capita, enhance food production, access and affordability to lower and stabilise prices and exchange rates to raise its credit score.

Rating agencies came under sharp focus in the aftermath of the 2008 global financial crisis, drawing criticisms for giving high credit scores to debts that later turned out to be high-risk investments.

The Fitch ratings also cited the dwindling foreign exchange reserves occasioned by the war in Ukraine, the Covid-19 pandemic and the increase in interest rates by the US central bank as other reasons that informed the downgrade.

However, the rating agency is likely to upgrade the country’s rating after it gave it a stable outlook.

“The stable outlook reflects some progress with fiscal consolidation, which is supported by a $2.3 billion (Sh282.2 billion) IMF programme, manageable near-term debt commitments and strong post-pandemic growth that is likely to continue over the medium term,” said Fitch in a statement.

The International Monetary Fund (IMF) has a 38-month programme with Kenya, which is aimed at reducing its debt vulnerabilities by cutting spending while increasing revenues, what is technically known as fiscal consolidation.

Kenya, which has a high risk of debt distress, has made progress in the reduction of its burden, though, at the expense of development spending, the World Bank noted in a recent report.

On November 29, Moody’s downgraded Ghana’s long-term issuer ratings to Ca from Caa2, a junk status, citing the announced restructuring of local and foreign currency debts that the agency noted will likely result in significant losses for private creditors.



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