The reasons for Fitch’s negative outlook revision are manifold. The agency cites Kenya’s difficulty in borrowing from global financial markets due to higher interest rates caused by central banks tightening their monetary policies to combat runaway inflation. Additionally, the country may face challenges in refinancing its $2 billion Eurobond maturing in June next year, a situation that has raised concerns about Kenya’s ability to manage its debt.
Moreover, weakening international reserves and uncertainty surrounding the implementation of the recently passed Finance Act 2023, which is facing court cases and social unrest, have also contributed to Fitch’s downgrade decision.
To improve its credit rating, the Treasury must focus on fiscal consolidation, bolstering the export sector’s performance, and accumulating foreign reserves. Additionally, the promotion of economic growth, improved food production, and stabilizing the consumer price index and exchange rate are essential for enhancing Kenya’s rating and attracting cheaper debt from global markets.
Kenya’s credit rating history is relatively young, spanning less than two decades. The country’s entry into the credit rating arena was initiated by Kamau Thugge, the current Central Bank of Kenya Governor, as part of President Mwai Kibaki’s goal to reduce reliance on donor support and promote self-reliance. The move aimed to bring international discipline to Kenya’s economic policies through independent assessments of its economic performance.
While Kenya’s credit rating has fluctuated over time, recent downgrades by Moody’s have pushed it deeper into junk territory, placing it on par with countries like Mongolia and Angola. To reverse this trend and graduate to investment grade, Kenya must implement fiscal consolidation, improve its export sector performance, and accumulate foreign reserves.
In conclusion, Fitch Ratings’ revision of Kenya’s credit outlook to negative underscores the country’s challenges in attracting funds from global financial markets. While the government may dismiss these ratings as arbitrary, their impact on global investors cannot be underestimated. To improve its standing and reduce borrowing costs, Kenya must undertake fiscal reforms, strengthen its export sector, and work towards greater economic stability.
By: Montel Kamau Serrari Financial Analyst 26th July, 2023
photo source Google
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