Global ratings agency Fitch Ratings has affirmed Kenya’s Issuer Default Ratings at ‘B+’ with a negative outlook, exposing the country’s vulnerability to meet its financial commitments.
This is below the country’s ceiling affirmed at ‘BB-’, a move that may see both local and foreign investors hesitate to invest in both foreign and local currency bonds.
Even so, the agency insists that the country’s ‘B+’ ratings reflects the solid growth record, strong medium-term growth potential, and favourable business environment. This is however expected to be hampered by low GDP per capita, sizeable current account and budget deficits and political risks even as the country heads to the polls in less than 30 days
The credit rating is a financial indicator to potential investors of debt securities such as bonds with letter designations from ‘AAA’ which illustrates a high investment grade economy to ‘D’ which shows the obliger is in default, hence bad for investors.
The ‘B+’ rating given to Kenya shows the obliger is more likely to default, though it currently has the capacity to meet its financial commitments.
However, adverse business, financial, or economic conditions will likely impair its capacity to meet its financial commitments. Furthermore, Fitch forecasts Kenya’s Gross Domestic Product to slow to 5.4 per cent this year from 5.8 per cent in 2016.
The country’s growth slowed in the first quarter of 2017 to 4.7 per cent down from 5.9 per cent in the same period the previous year, an aspect attributed to drought that emanated from failure of the 2016 short rains and delay in the onset of the 2017 long rains. slowdown in credit uptake was also blamed for the slow growth
However, Fitch continues to assess Kenya’s medium-term growth potential as strong, sustained by improved security that has fueled a recovery in tourism and high public spending that supports the construction sector.
The agency estimates that the general government deficit in the fiscal year that ended in June 2017 widened to 8.3 per cent of GDP, above both the government’s revised target of 6.9 per cent, published in the Medium Term 2017 Budget Policy Statement.