Moody’s stable credit rating for Kenya sends mixed signals

International credit ratings agency Moody’s has termed Kenya’s credit outlook as stable, contradicting Fitch Ratings which two weeks ago downgraded the country from stable to negative.

Moody’s rating sends mixed signals on the country’s ability to comfortably repay its debts, coming so soon after Fitch’s warning shot.

In a statement Monday, Moody’s said Kenya’s B1 rating reflects robust growth potential balanced against twin deficits in the budget and current account and insecurity challenges.

The agency said proper implementation of devolution without bursting the budget could improve the country’s rating.

“Further progress on economic diversification and a decline in terrorist incidents that would improve the environment for tourism would also be credit positive,” it said.

“At the same time, mounting fiscal slippages that could lead to an unsustainable debt path or continued security incidents or renewed political instability that substantially dampen economic growth prospects would put downward pressure on Kenya’s rating.”

Two weeks ago, Fitch downgraded Kenya’s credit outlook from stable to negative, citing increased borrowing by the government amid higher spending and weak revenue collections.

This means that Fitch could lower its rating of Kenya’s sovereign debt over the next one to two years if the negative economic trends persist.

Fitch Ratings revised the outlook on Kenya’s long-term foreign and local currency issuer default ratings to negative from stable and affirmed them at ‘B+’ and ‘BB-’, respectively.

READ: Fitch downgrades Kenya's credit outlook on higher borrowing

Moody’s said Kenya’s B1 rating and stable outlook reflect the country’s robust growth potential, its leadership role in the East African region and commitment to structural reforms.

The large government budget deficits, huge current account deficit and security challenges were cited as the main challenges.

Moody’s warning on high spending by the government that is funded by borrowed money mirrors that of Fitch, but it expressed confidence in the growth potential of the economy.

“The energy and transport infrastructure expansion currently underway should drive robust growth and improve regional trade links,” said senior vice president Kristin Lindow.

The agency added that more investment accruing from the recent Global Entrepreneurship Summit will reinforce the vote of confidence by global multinationals Google, Oracle and IBM which have set up their regional bases in Nairobi.

It, however, expects that the steep drop in oil and other commodity prices is likely to slow or even suppress investment in the promising oil and gas sector.

Kenya’s credit rating is important in the country’s plans to borrow more funds from the global markets following last year’s successful debut Eurobond.

Lowering the country’s rating could make it difficult for the government to borrow more funds or force it to pay higher interest on new debt issues.

Kenya has been borrowing heavily to finance infrastructure projects such as the standard gauge railway.