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S&P to cut Kenya's creditworthness in August

It is likely to further make it harder or more expensive for the country to access credit.

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by VICTOR AMADALA

Business16 July 2024 - 13:23
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In Summary


  • Last week, Moody's painted a bleak picture of the country's economic status in terms of fulfilling debt obligations. 
  • The country's total public debt is currently estimated at Sh11.3 trillion, gobbling over half of ordinary revenue.
Debt questions

International credit rating agency, Standard and Poor's (S&P) will either cut  Kenya's B credit score by a notch to B- or retain a negative outlook in the August review. 

A notch cut or downgrade is a negative attribute that exposes the debt default risks, a move likely to further make it harder or more expensive for the country to access credit in the international market. 

"S&P Global plans to wait until a scheduled review date on August 23 to decide whether to cut Kenya's sovereign credit rating following deadly turmoil in the country that has seen tax hikes abandoned and the entire cabinet sacked,'' the firm's lead analyst for Kenya Giulia Filocca said in a statement. 

Unlike Moody's which downgraded Kenya's debt status a week ago, S&P has opted for a wait-and-see to analyze the fast-changing social economic scenes following antigovernment protests seeking to send home corrupt and incompetent leaders. 

"We will have more clarity around the Appropriation Bill, the spending allocations, the final budget, the Finance Bill and potentially the new cabinet,'' Filocca said.

Moody's painted a bleak picture of the country's economic status in terms of fulfilling debt obligations. 

The country moved from B3 rating, whereby the country's debt obligations are speculative and subject to high credit risk, to Caa1 rating, whereby the obligations are poor and subject to 'very high credit risk.'

It attributed the downgrade to Kenya's inability to effect fiscal consolidation measures that would lower the risk of defaulting.

The double downgrades from top credit rating agencies put Kenya in a budget funding limbo, especially for the current financial year after mass protests saw President William Ruto reject funding measures in the Finance Bill, 2024 in totality. 

Addressing the nation on June 26, Ruto said his government will embark on austerity measures that will see the planned budget for 2024/25 slashed by 1.9 per cent to claw back some of the money that it had hoped to bring in from the now-scrapped tax hikes.

The Kenya Kwanza government had projected to collect Sh347 billion from tax measures in the now-scrapped Finance Bill to fund the Sh4 trillion budget.

Although the National Treasury had planned to slash the overall borrowing by 50 percent as part of the government's effort to achieve a balanced debt by 2027, Ruto insists that he has no option but to borrow to meet budgetary needs. 

The country's total public debt is currently estimated at Sh11.3 trillion, gobbling over half of ordinary revenue.

"These downgrades are putting Kenya in a tough situation. They mean two things .. no credit or high interest,'' an economist Patrick Pkomu told the Star. 

He adds that it will worsen if the country is forced to scupper the IMF programme altogether following public outcry.

S&P's top regional analyst Ravi Bhatia recently told Reuters that the international lender is likely to postpone but not abandon the review, saying it is particularly crucial for Kenya given its stretched finances.

"Yes, the reviews might be postponed or they miss some conditionalities, but they have a lot of support from the international donor community," So we don't expect a full derailing of the IMF programme."

Credit reviews by international firms continue to receive public condemnation in Kenya and the continent at large, with various stakeholders calling for fairness. 

Last week, Kenyans on X termed the poor ratings by international credit rating agencies as a systematic financial polarisation structured by sharks in the global financial system. 

They want the agencies to come clean on the perimeters they follow in establishing the creditworthiness of countries in the global South.

Several users want credit rating firms to indicate factors they consider in determining the credit worthiness of economies especially in the global South.  

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