S&P Global Ratings, an American credit agency, has lowered its long-term foreign and local currency sovereign credit ratings on Kenya from ‘B+' to ‘B’.
“There are significant risks to the government’s fiscal consolidation plan, while external indebtedness will remain high. Consequently, we are lowering our ratings on Kenya to ‘B’ from ‘B+’.
“A sharp slowdown in GDP growth in 2020 tied to the coronavirus pandemic and a consequent rise in fiscal deficits will weigh read.
Credit ratings are relied upon by pension funds, investors and sovereign wealth funds to gauge the credit worthiness of a country.
Kenya’s credit rating being lowered will therefore mean that the Treasury has to pay more to borrow from foreign lenders.
Speaking to the Business Daily the chief operating officer at Grant Thornton, Kunal Ajmera, said that the country would be negatively affected by this move.
“It will be much harder for Kenya to borrow from the International market.
“The lenders will demand for higher yield, and it will increase the cost for borrowing for Kenya. This, combined with the existing high borrowing level can result in significant deficit for future budgets,” Ajmera said.
Kenya’s projected borrowing up to the end of June 2021 stands at Ksh970 billion. The country targets to raise more money from foreign loans due to the lower interest rates.
A country’s ability to pay debt depends on the rate at which it generates and grows tax revenue. Kenya’s public debt has been rising rapidly in the past recent years. This could lead to increase in recurrent expenditure and decrease the amount spent in development.
As of December 2020, Kenya’s foreign loans stood at Ksh3.6 trillion. This amount accounted for fifty-one percent of Kenya’s total debt of Ksh7.1 trillion.
