Political bickering and a stubborn public debt is set to cost Kenya favorable economic rating.
Global rating agency Moody says Kenya’s economic climate continues to deteriorate with debt to GDP ratio now standing at 56.4 percent.
The rating agency has said without policy intervention, Kenya’s debt is likely to hit 60 percent of GDP by June 2018.
Kenya is currently assigned a B1 rating and a downward review is likely to shake investor’s confidence.
Since the year 2012, rating agency Moody’s service has persistently assigned Kenya’s economy a B1 rating due to strong growth, resilience in dealing with internal and external shocks and rigorous fiscal reforms.
However, recent developments in the country have threatened this rating with the agency saying it has started a process of reviewing Kenya’s position.
Globally, most investors use rating agencies as their secondary source of information when making investment decisions.
The stronger the rating the higher the investment chances.
Moody’s rating says Kenya is facing serious economic and political shocks, which unless addressed urgently will lead to a further weakening of the Kenyan economy.
The agency says a downward review will be driven by rising government debt burden, which has risen to 56.4% of GDP as at June this year, up from 40.5% five years ago, pressures on the government primary balance, which posted a deficit of 5.3% of GDP in the latest fiscal year ending June 2017 and uncertainties over the future direction of economic and fiscal policy due to evolving political dynamics.
The rating agency warns that unless a decisive policy response is introduced, the upward trajectory in government debt will see debt-to-GDP ratio surpass the 60% mark by June next year.
However, Moody’s says it might retain Kenya’s rating of B1 if the review were to conclude that the policy response offers the prospect for tempering the currently-anticipated upward trend in government debt and that liquidity risks are being effectively managed.
At B1 rating, Kenya is in the same group with among others Tunisia, Honduras and Bahrain.