Kenya’s Growth Domestic Product (GDP) is expected to decelerate to 3.5 % in 2020 due to pressure on agricultural export, tourism activities, locust invasion and COVID-19 pandemic says a credit rating report.
The report done by Agusto & Company Limited, a leading Pan-African credit rating agency has given Kenya a “B+” sovereign credit rating.
Key factors that contribute to this rating include persistent fiscal slippages by the Government leading to expanded external borrowing, rising budget deficit to GDP ratio, high risk debt distress owing to adverse effect of locust invasion and Covid-19 pandemic and a worsening balance of trade deficit due to low demand for the country’s exports.
According to Ikechukwu Iheagwam, Country Manager, Agusto & Company Limited, “Given that Kenya has consistently missed its revenue target by at least 8% since 2014/15 fiscal year, we expect the country’s fiscal deficit for the 2019/20 budget cycle to remain well above the Government’s 5.1% target and the East African Community convergence benchmark of 3%.
“Fueled with these economic factors, we expect Kenya’s debt-service to revenue in 2020 to be twice the recommended 30% threshold by the International Monetary Fund (IMF) which will put a strain on planned development expenditure and the country’s ability to fight COVID-19 should there be a widespread outbreak in the country,” noted Mr. Iheagwam.
He added: “In 2020 we expect a strain on agricultural exports and tourism activities, key contributors to the Kenyan economy. Further, Kenya’s 2019 US$8.7 billion foreign reserve represents 5.5 months import cover which we expect to remain about the same level as receipts of foreign currency loans from international lenders is likely to have a cushioning effect.
The negative outlook for 2020 is based on expanded external borrowings, a rising budget deficit to GDP ratio, low demand of the country’s exports and a high risk of debt distress resulting from expected decline in government receipt from agricultural exports, foreign remittances and tourist activities due to the locust invasion and the COVID-19 pandemic.
The ratings agency notes that the expansionary monetary policy and the repealed interest capping by The Central Bank of Kenya is likely to have positive impact on the country’s credit market and estimates that a stronger private sector led credit growth will be necessary to sustain high economic expansion.
The rating reflects Kenya’s resilient macroeconomic fundamentals, a diversified economy, a relatively stable local currency against major international currencies, a comfortable foreign exchange reserve buffer against short-term external shocks and Kenya’s position as the leading business hub within the EAC.