Fitch affirms Kenya at ‘B+’ with a Negative Outlook

By O’brien Kimani

Rating agency Fitch Ratings has affirmed Kenya’s Long-Term Foreign and Local Currency at ‘B+’ with a Negative Outlook.

The agency says Kenya’s ratings are supported by strong economic growth potential, favorable business climate and moderate exposure to commodity prices.

However the agency says the ratings are constrained by a sizeable twin budget and current account deficits, rising public and external debt ratios, as well as high political risks.



Fitch rating says Kenya is starting to make headway in reducing its budget deficit, but it remains substantial and the consolidation path is subject to downside risks.

Fitch forecasts a fiscal deficit of 7.1% of Kenya’s total wealth for the fiscal year 2016/17, down from 7.5% in FY16 compared with the original budget target of 9.7%.

The rating agency says Kenya’s large fiscal deficits have led to a steady increase in government debt, to 55% of GDP at end-FY16 from 42% at end-FY13. Fitch forecasts it will rise further to 57% at end-FY17, just above the ‘B’ median of 56%.

The possibility of under-performing tax revenues and increased current expenditures around the August 2017 general elections represent a downside risk, although this is balanced against Kenya’s history of under-executing capital expenditures, says a statement sent by Fitch Ratings.

The statement says Kenya’s debt sustainability will rely on its ability to continue to reduce the primary fiscal deficit and to maintain high levels of economic growth. The medium-term growth outlook remains strong.

Fitch forecasts full year 2016 growth to be 5.8%, owing to decelerating credit growth, and 6% in 2017, but uncertainty around the elections is a downside risk. Fitch is skeptical that the interest rate cap will increase overall credit by increasing demand as the authorities expect.

In the near term, the rate cap will more likely put additional pressure on bank profitability and willingness to lend. Credit to the private sector grew at 4.8% year-on-year in October 2016, down from 19.5% in October 2015.

In August this year Parliament passed a law capping the rates that lenders can charge at 400 basis points above the central bank policy rate.


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