Fitch Ratings says Kenya can still borrow more cash

Kenya still has headroom to borrow despite the vast outlay on infrastructure, Fitch Ratings says in its latest outlook affirming ‘B+’ stable rating.

The global ratings agency says the roads, ports and other infrastructure projects undertaken during President Kibaki’s last term have put pressure on Kenya’s debt ratios but adds that an increase in government revenues coupled with a change in accounting standards should reduce the levels.

“Rising government revenue, well developed domestic capital markets and strong institutional capacity, increases Kenya’s debt carrying capacity relative to its peers. The upward revision to gross domestic product (GDP) expected in September would see debt decline to 45 per cent of GDP, only slightly above the ‘B’ median of 42.5 per cent,” said Fitch.

Between 2008 and 2009 the debt to GDP ratio increased from 42.9 per cent to 53.5 per cent, which Fitch says is higher than other countries that have a similar B+ rating with a stable outlook.

The Treasury has already said it plans to borrow from the international markets in the fiscal year 2015-2016.Cabinet secretary Henry Rotich told a briefing in June the government is also considering borrowing through an Islamic bond or Sukuk.

Success of the debut sovereign bond that managed to raise Sh172 billion or $2 billion in June has made a strong case for borrowing abroad. Netting hard currency from the international market is meant to give the State access to longer-term debt at a lower cost and to avoid crowding out the private sector.

“With our plan to access international capital markets we will reduce our recourse to domestic borrowing,” said Mr Rotich at the time.

Reduction of road blocks on major highways, faster turnaround time at the Mombasa port and easier company registration are other government actions which Fitch said are bearing positive results. Insecurity, however, remains the biggest worry and could see the general economy fail to hit targets apart from reducing the chances of a better rating.

“However, Kenya’s security situation has continued to deteriorate following the bombing (terrorist attack on) of the Westgate Shopping Centre in 2013,” said Fitch.

S&P, Moody’s and other rating agencies have also assigned Kenya a stable rating. Moody’s, which assigned Kenya B1 rating with a stable outlook in June, said an upgrade on the rating would happen if the government implements institutional reforms and if more capital flows begin to trickle from oil and gas industry.

Fitch affirmed Kenya’s long-term foreign and local currency Issuer Default Ratings (IDR) at ‘B+’ and ‘BB-’, respectively, with stable outlooks. It also affirmed Kenya’s Short-term foreign currency IDR at ‘B’ and Country Ceiling at ‘BB-’.

The issue ratings on Kenya’s senior unsecured foreign currency bonds were also been affirmed at ‘B+’.