Standard and Poor’s (S&P) has downgraded Kenya’s sovereign rating to ‘B’ from ‘B+’ despite a deal with the International Monetary Fund and backed by World Bank support.
“Our ratings on Kenya are constrained by the country’s low GDP per capita, high fiscal deficits and debt stocks, and its history of ethnic tensions,” S&P said in a statement.
Standard and Poor’s said ratings in the country are supported by its diversified economic base, including its large and diversified agricultural and services sectors, relative to peers, which should help cushion its economy and support a rebound.
“Kenya’s institutional framework is relatively sophisticated compared to peers, but ethnic loyalties often supersede national ones, leading to tensions, while the establishment and expansion of counties in recent years have exacerbated fiscal pressures.” said S&P
Mark Bohlund, Senior Credit Research Analyst at REDDIntelligence, in a tweet, said he agreed with S&P as in their view as substantial revenue increases, expenditure rationalization will be difficult ahead of a planned constitutional referendum in 2021 and a general election in 2022.
He further added that they expect fiscal deficits to average 7.1% in 2021-2024 and reach 5.8% in FY 2024
This comes despite the International Monetary Fund [IMF] report, where it raised Kenya’s 2021 economic growth forecast from 4.7% to 7.6% following earlier discussion with the government.
The international financial institution revealed that it had reached a 3-year $2.4 billion financing agreement with Kenya to support the country’s COVID-19 response and reduce the level of debt relative to the GDP.
Standard and Poor’s Global Credit Outlook
The agency predicts that the pandemic and its aftermath will continue to dominate credit conditions in 2021 but more broadly only in the second half of the year as more countries continue to roll out the COVID-19 vaccines.
The vaccination measures should allow for many social-distancing measures to be lifted, a resumption of international travel, and a rebound in private demand.
As a result, governments may be able to phase out extraordinary fiscal support gradually. Central banks are likely to keep interest rates exceptionally low and continue to offer liquidity support as necessary.
Standard and Poor’s Global Ratings is an American credit rating agency and a division of S&P Global that publishes financial research and analysis on stocks, bonds, and commodities. S&P is considered the largest of the Big Three credit-rating agencies, which also include Moody’s Investors Service and Fitch Ratings