Rising Debt and Falling Revenue Weakening Kenya’s Credit Rating

Kenya’s perpetual passion for debt coupled with the inconsistent and falling revenue risk putting the country’s credit profile on the negative, says Moody’s, the Global rating agency in an annual credit analysis released on December 11.

According to the agency, the two are key factors that will affect Kenya’s future prospects for other loans.

Moody’s has maintained the country’s credit score at B2 stable. This follows last year’s score of B1 that was put on a downgrade review.

From the analysis, it was reported that one of the challenges to Kenya’s positive credit profile is low institutional growth, which is currently unstable.

Kenya ranks low on the Worldwide Governance Indicators that determine the strength of the institutional growth.

While external borrowing seeks to stabilize a country’s economy, using the loan to pay for other loans or for projects that amount to no profits is a fickle business.

What Moody’s report is predicting is that if Kenya continues to borrow and the income from the debt as well as other sectors of the economy that contribute to the repayment, it no longer has a safer bet should it seek to borrow again in future.

Kenya is hardly creating any new wealth from the borrowing, not with the wave of corruption rocking the country. Already, it is struggling to pay some loans and there are thoughts of rolling over other loans nearing maturity.

The consequence of the falling credit rating is that investors and lenders will want a higher interest rate to compensate for the risk of possibly losing money. Not only does this spell doom for a country struggling economically but it also makes paying back the loans very costly.

According to Lucie Villa, senior credit officer and co-author of the Moody’s report, Kenya’s “debt burden has increased consistently and is expected to reach 60 percent of GDP over the medium-term.

Meanwhile, the 280 billion-shilling Eurobond taken in 2014 is maturing in June 2019. The loan’s repayment is projected to gobble up a total of 97.71 billion shillings from the taxpayers before the government thinks of the 400 billion shillings Eurobond maturing in 2024.

Nevertheless, the rating agency says the investor confidence in the country and the gradual recovery of the business sector should restore the growth rate to the 6 percent long-term average. The dropping effects of drought is also a contributing factor, concluded Moody’s.