Kenya’s credit profile is constrained by high and rising government debt as well as a weak institutional framework and low wealth levels, Moody’s Investors Service said in an annual report on Friday.
The government debt-to-GDP ratio increased to 62 percent of GDP at the end of the 2019 fiscal year, from 49 percent in 2015, while interest payments rose to 22 percent of government revenue from 15 percent over the same period.
The rating agency noted that Kenya’s credit strengths includes its diversified economy with multiple growth sources, favourable growth prospects and demonstrated resilience to shocks.
The country’s deep capital market and mature financial sector relative to peers gives the government greater capacity to borrow domestically in local currency and over a longer period, said the report.
“The stable outlook on Kenya’s sovereign rating reflects our expectation of relatively strong economic growth, counterbalanced by large fiscal deficits and debt,” said David Rogovic, a Moody’s Vice President – Senior Analyst and the report’s co-author.
Moody’s pointed out that effective implementation of structural fiscal reforms that reduce the fiscal deficit, debt and liquidity risks would strengthen Kenya’s credit profile.
“Conversely, a sustained increase in borrowing costs, denoting more intense liquidity pressure than assessed, would weaken its credit profile. A loosening of fiscal policy, leading to a sustained increase in government debt would likely result in a downgrade,” noted the report.
JK/abj/APA