President Uhuru Kenyatta has established his government and the Big Four Agenda on loans.
Most people have raised eyebrows on this borrowing spree. Some have even stated including media reports that Kenya could succumb loans.
Although the nature and the details of the many loans remain unclear, President Uhuru Kenyatta has received a clean report from a New York based firm.
Fitch Ratings on Tuesday affirmed Kenya’s ability to service long-term foreign loans, citing strong economic growth levels which will cushion her against budget deficits and external debt service pressures.
The New York-based credit rating has maintained Kenya’s credit score for long-term foreign-currency Issuer Default Rating (IDR) at B+ with a stable outlook high debt, implying that the country’s ability to meet her debt obligations remains satisfactory. Fitch and Standard & Poor’s (S&P’s) are usually invited by the Kenyan government to assess risks in the economy such as gaps in the budget and value of cash outflows and inflows (current account).
“Kenya’s ratings reflect strong and stable growth balanced against persistent twin (budget and current account) deficits and high public and external debt levels,” Fitch said in a statement on Tuesday.
Kenya’s economy surpassed expectation to grow at 6.3 percent in 2018, the fastest pace since 8.4 percent in 2010, on bumper agricultural harvests following sufficient rainfall, the Economic Survey 2019 showed Thursday last week.
Fitch has forecast 2019 growth to slow slightly to 5.8 percent “as agricultural growth normalises but the service sector continues to support growth”, fluctuating at around 6.0 percent in the medium term.
Persistent gaps in budget amid below-target revenue has prompted the Treasury borrow cash in local market and abroad, pushing the ratio of debt to gross domestic product (GDP) to 58 percent in the year ended June 2018.
“Strong growth and modest fiscal consolidation will lead to a slight decline to 57 percent of GDP in FY19 (current year ending June 2019), according to Fitch’s forecasts. Interest payments increased to 21 percent of revenue in FY18 (year ended June 2018) and will remain at this level through FY20 (June 2020),” the company said.
Kenya has resorted to retiring expensive short-term foreign loans and replacing them with medium-term facilities which will mature at least after seven years.