•The exchequer yesterday failed to give a reason for the cut and applicable interest rate.
•Fitch Ratings downgraded Kenya’s credit rating to B from B+ citing the country’s persistent twin fiscal and external deficits, high debt, and deteriorating external liquidity.
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Kenya has secured a $500 million (Sh70.4 billion) syndicated loan from five international lenders, only half of the original plan, perhaps speaking to the country's poor credit score.
The country had initially indicated that it was seeking $600 million after it mandated CitiGroup of the US, Standard Chartered Bank of the UK and South African lenders Standard Bank and Rand Merchant Bank to arrange the facility.
The exchequer yesterday failed to give a reason for the cut and applicable interest rate.
President William Ruto's regime was targeting $200 million in the first round from the four mandated arrangers despite having hoped to launch at $300 million.
Experts are poking holes in the $100 million cut, with some attributing it to the country's poor credit score.
Speaking to the Star, an economist James Marenge said that latest sovereign debt ratings by international agencies like Moody's and Fitch have not been favourable.
"Those ratings means much to the lending community. We witnessed two downgrades by Moody's in the last financial year. I might be wrong but i strongly believe that the ratings had to do with the $100 million cut,'' he said.
His sentiments are shared by financial analyst Nelly Modani who projects the repayment rate to be above nine per cent.
"Lenders are extra cautious as it can be clearly seen from the subscription rate. Those who offered are going to charge nothing less than nine per cent,'' she said.
The pricing of the syndicated loan is set at the Secured Overnight Financing Rate-which is s a broad measure of the cost of borrowing cash overnight collateralised by Treasury securities plus five per centage points.
Last year, Moody’s downgraded the country’s foreign currency issuer ratings from B2 to B3.
This means that Kenya is now classified as “high credit risk” and just one level above “very high credit risk”.
In its statement, Moody’s cited rising liquidity risk for the government as the reason for the downgrade.
“The rating downgrade is driven by an increase in government liquidity risks. Domestic funding conditions have deteriorated considerably over the past two months with very low net domestic issuance contributing to financing shortfalls,” Moody’s said.
Similarly, Fitch Ratings downgraded Kenya’s credit rating to B from B+ citing the country’s persistent twin fiscal and external deficits, high debt, and deteriorating external liquidity.
The global rating agency in its rating downgrade also highlighted the country’s high external financing costs, which presently constrain access to international capital markets.
The government faces elevated external debt service obligations in 2023-2024, including the maturity of a $2 billion(Sh246.1 billion) Eurobond in June 2024, which combined with high current account deficits.
“The proceeds from the facility will be used to finance the development projects as per the development budget approved by the Kenyan Parliament for the Fiscal Year 2022/2023,” the lenders said.
The syndicated loan is expected to further stretch Kenya's public debt away from the initial ceiling of Sh10 trillion. Last week, the Parliament allowed the country to set debt limit at 55 per cent of the GDP.
The country is going for the syndicated loan at the time it is facing a financial turmoil, with the shilling already trading close to Sh141 against the greenback.
Kenya Shilling has depreciated close to 15 per cent in the past year.