Kenya’s Growth Domestic Product (GDP) is expected to decelerate to 3.5 % in 2020 due to pressure on agricultural export, tourism activities, locust invasion, and COVID-19 pandemic say a credit rating report.
The report done by Agusto & Company Limited, a leading Pan-African credit rating agency has given Kenya a “B+” sovereign credit rating.
Key factors that contribute to this rating include persistent fiscal slippages by the Government leading to expanded external borrowing, rising budget deficit to GDP ratio, high-risk debt distress owing to the adverse effect of locust invasion and Covid-19 pandemic and a worsening balance of trade deficit due to low demand for the country’s exports.
According to Ikechukwu Iheagwam, Country Manager, Agusto & Company Limited, “Given that Kenya has consistently missed its revenue target by at least 8% since 2014/15 fiscal year, we expect the country’s fiscal deficit for the 2019/20 budget cycle to remain well above the Government’s 5.1% target and the East African Community convergence benchmark of 3%.
“Fueled with these economic factors, we expect Kenya’s debt-service to revenue in 2020 to be twice the recommended 30% threshold by the International Monetary Fund (IMF) which will put a strain on planned development expenditure and the country’s ability to fight COVID-19 should there be a widespread outbreak in the country,” noted Mr. Iheagwam.
He added: “In 2020 we expect a strain on agricultural exports and tourism activities, key contributors to the Kenyan economy. Further, Kenya’s 2019 US$8.7 billion foreign reserve represents 5.5 months import cover which we expect to remain about the same level as receipts of foreign currency loans from international lenders is likely to have a cushioning effect.
The negative outlook for 2020 is based on expanded external borrowings, a rising budget deficit to GDP ratio, low demand of the country’s exports and a high risk of debt distress resulting from an expected decline in government receipt from agricultural exports, foreign remittances and tourist activities due to the locust invasion and the COVID-19 pandemic.
The rating agency notes that the expansionary monetary policy and the repealed interest capping by The Central Bank of Kenya is likely to have a positive impact on the country’s credit market and estimates that a stronger private sector-led credit growth will be necessary to sustain high economic expansion.
The rating reflects Kenya’s resilient macroeconomic fundamentals, a diversified economy, a relatively stable local currency against major international currencies, a comfortable foreign exchange reserve buffer against short-term external shocks and Kenya’s position as the leading business hub within the EAC.
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