The Government’s plans to issue a Sh129 billion sovereign bond have received another boost after an international credit rating agency expressed confidence in Kenya’s capacity to honour its domestic and international debt obligations.
Central Bank of Kenya
UK-based Fitch Ratings has issued a credit rating implying the country is less vulnerable in the near term and has the capacity to meet its financial obligations.
Risk exposure
However, the country still faces uncertainties and exposure to adverse business, financial or economic conditions, which could impair its capacity to meet its debt obligations.
Yesterday, Fitch Ratings affirmed Kenya’s long-term foreign and local currency Issuer Default Ratings (IDR) at ‘B+’ and ‘BB-’ respectively, with a stable outlook.
At the same time, the credit rating agency affirmed Kenya’s short-term foreign currency IDR at ‘B’ and Country Ceiling at ‘BB-’.
In a statement yesterday, Fitch pointed out Kenya’s large current account deficit has moderated over the last six months and the firm forecasts a current account deficit of 7.5 per cent of gross domestic product (GDP) by 2015.
The firm also noted that Kenya’s foreign reserves have risen, while under-spending on capital projects is expected to keep the budget deficit contained at 5.3 per cent of GDP during the current fiscal year compared with a deficit of 7.9 percent announced at the time of 2013 budget read in June.
Fitch, however, noted that medium-term fiscal risks might emanate from the review of the public sector salary structure over the next 18 months, as well as from the devolution to the new county system.
“Growth in 2013 was held back by government under-spending after the March 2013 elections,” the firm said.
Kenya’s economy is expected to have grown by 4.8 per cent in 2013, below the government’s expectation of a 5.6 per cent expansion.
Despite lower-than-expected growth, the five-year average growth rate is likely to have picked up to 4.9 per cent from 3.8 per cent.
Fitch expects Kenya’s economic growth to accelerate to 5.3 per cent in 2014, supported by rising domestic consumption on the back of stronger credit growth and remittances.
An increase in government spending and a more stable political environment is expected to support infrastructure investment.
According to Fitch economic policy-making has improved since 2011 when excess liquidity in the domestic banking system contributed to sharply rising inflation.
The firm, however, noted that the main factors that individually, or collectively, could trigger negative rating action include: a further weakening in public finances due to rapid increases in current expenditure, widening of the current account deficit, deterioration in the business environment and weakening of the macroeconomic policy-making framework.
PBond issuance
National Treasury is on course to issue a sovereign bond to fund key infrastructure projects and retire some of commercial loans borrowed from foreign banks.
The bond is also expected to act as a benchmark bond to catalyse private sector participation in the international financial market where market conditions are currently favourable for investors in the country.
Credit rating is used by sovereign wealth funds, pension funds and investors to gauge the credit worthiness of Kenya thus having a big impact on the country’s borrowing costs.
Kenya’s latest high rating remains constrained by its “low level of economic development, underlying ethnic tensions and relatively high fiscal deficit levels.
This state of affairs remain a threat even as the current political temperatures remain stable.
By James Anyanzwa, The Standard
