Standard & Poor’s lowers Kenya’s credit rating outlook from stable to negative

American financial services company, Standard & Poor’s has lowered Kenya’s credit rating to negative from stable due to elevated risks from currency depreciation and a widening budget deficit. The country’s rating was set at B+, four levels below investment grade, the New York-based company said in a statement.

Meanwhile, financial services group, Moody’s last set Kenya’s credit rating at B1 with a stable outlook. Fitch’s credit rating for Kenya was last reported at B+ with negative outlook. . In general, a credit rating is used by sovereign wealth funds, pension funds and other investors to gauge the credit worthiness of Kenya thus having a big impact on the country’s borrowing costs.

“The negative outlook reflects our opinion that Kenya’s fiscal position is structurally weakening and that this will feed into a mounting debt stock, which could also increase external vulnerabilities,” S&P said in its statement.

Kenya’s government and the World Bank both reduced their growth forecasts for the economy on Thursday. The World Bank estimates an expansion of 5.4 per cent this year, compared with an estimate of 6 per cent in December.

Currently, Kenya’s debt is equivalent to 45 per cent of its GDP. This figure that could swell to 60 per cent by the fiscal year through June 2017, said Standard & Poor’s. Kenya, East Africa’s most prominent economy, sold an inaugural Eurobond last year, raising a total of $2.75 billion (Sh278.9 billion). The government expects a $750 million (Sh76 billion) syndicated loan will come through by the end of October. The government has also tapped two loan agreements with China worth $3.6 billion (Sh365 billion), Standard & Poor’s said.

On Friday, Standard & Poor’s revised its budget deficit forecast to 9.4 per cent of GDP for 2014-15, from a previous estimate of 7.3 per cent in April.

Meanwhile, the Central Bank of Kenya (CBK) has increased its benchmark interest rate by 300 basis points this year to support the shilling and the resulting rise in interest rates has made government borrowing on the local markets more expensive.

 

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