The Kenyan Shilling hit a new record low after credit rating agency Fitch on Tuesday warned that Kenya was at risk of a negative listing.
The local currency declined to a record low of 152.80 per dollar on Wednesday, falling by about one per cent. Fitch stated that it was mulling downgrading Kenya’s credit rating depending on its foreign reserves.
The credit rating agency stated that should Kenya use a substantial amount of its foreign reserves to offset the Ksh300 billion Eurobond maturing on June 2024, then its credit rating would be lowered.
“Deploying reserves to redeem the Eurobond would reduce import cover, which could still contribute to a downgrade of Kenya’s rating depending on the extent of the drawdown and outlook for other sources of external financing,” Fitch warned.
To avoid the negative listing, Fitch remarked that the National Treasury should explore alternative means to boost its foreign reserves.
“We believe some of the government’s planned additional external financing will also materialise,” Fitch stated.
Some of the ways the government is looking to boost foreign reserves is through floating another Eurobond and syndicated bank loans.
The warning from Fitch was made the same day that the International Monetary Fund (IMF) approved a decision to increase Kenya’s lending programme by Ksh98 billion.
President William Ruto has in the past accused international rating agencies of blackmailing the country into paying high-interest rates.
In August, Ruto criticised Moody's Investors Service after the rating agency made a similar warning to Fitch.
Ruto remarked then that the agency had ulterior motives, hoping for Kenya to default so that investors could benefit from increased interest rates.
At the time, the Kenyan government was exploring a now-discarded option of buying back half of the Eurobond, a year before its maturity date.
“We need to see the details and the terms of the buyback before we can assess whether it constitutes a distressed exchange, and therefore a default under Moody’s definition,” the agency warned.
