Kenya is among 65 countries in the world whose sovereign credit worthiness will maintain the negative status next year, according to the 2021 Moody’s Sovereign Outlook.
The credit rating agency attributes this to negative effects of coronavirus, which has weighed down economic activities, government finances and complicated policy choices.
According to the outlook released Wednesday, 65 (60 per cent) of Kenya's 108 sovereign rating actions have been negative – a higher proportion than in 2019 (20 per cent) and 2018 (30 per cent).
It adds that almost a third (33) of all rating actions in 2020 were downgrades, the highest tally since the actions taken in 2016 in response to the previous oil price shock.
"Over the near term, sovereigns with low credit ratings will be the most adversely affected given their lower economic and institutional strength as well as their more limited access to funding,’’ the report reads.
The report says that Covid-19 associated expenditures and loss of revenue has led to widening fiscal deficits and record-high debt levels.
“Monetary policy settings have also loosened around the globe to help minimise the economic shock and to sustain the liquidity of financial markets following the initial crunch,’’ says Moody’s.
Kenya has been forced to expand its expenditure for the current financial year by almost Sh200 billion amid a projected drop in revenue collection.
In the 2020 Budget Review and Outlook Paper, the exchequer has raised expenditure for the year to Sh2.92 trillion up from Sh2.76 trillion.
To cover the deficit, the country plans to borrow just above Sh1 trillion up from Sh840 billion as earlier planned.
The new report is likely to worsen Kenya’s credit outlook, a move that will see the country struggle to secure loans from the international market or be loaned at higher rates to cover high risk.
It comes just five months after Moody's changed the outlook on the Government of Kenya's ratings to negative from stable affirming the country’s B2 issuer and senior unsecured ratings.
It attributes the negative score to the country’s rising financing risks posed by large gross borrowing requirements, which include amortisation of external bilateral debt and the need to refinance a large stock of short-term domestic debt.
Moody’s expects Covid-19 to continue weakening Kenya’s fiscal balance in the current financial year as weaker revenue collection and fiscal measures in response to the pandemic delay fiscal consolidation..
In July, Standard and Poor's (S&P) lowered the country’s sovereign credit outlook to ‘negative’ from ‘stable’, citing unstable economic growth due to coronavirus pandemic.
In May, IMF also raised Kenya’s risk of debt distress to high from moderate in a statement because of the costly impact of the worsening COVID-19 crisis.