Moody’s raises the alarm over high public debt

What you need to know:

The amount that the Treasury intends to borrow through the eurobond is contained in an International Monetary Fund (IMF’s) economic review report released on Wednesday.
The highest rating assigned to the strongest and politically stable economies is triple A (AAA), while B1 is classified as “speculative high credit risk”.
Weyinmi Omamuli vice president and senior analyst of the sovereign risk group at Moody’s said that if Kenya’s oil finds are commercially viable they would help reduce its dependence on expensive imports which would reduce is deficit and help balance out the current account.

International ratings firm Moody’s Investor Service on Wednesday assigned Kenya’s local and foreign debt a B1 rating with a stable outlook, as it also emerged that the country is preparing to borrow at least Sh85 billion ($1 billion) through a sovereign bond.

However, Moody’s warned that the “low government financial strength, as reflected in relatively high debt levels” had an impact of lowering the rating, adding that the country also remained “vulnerable to a variety of shocks due to political, external and security-related factors.”

Kenya’s public debthas risen to Sh1.7 trillion, equivalent to 50 per cent of the GDP.

The London-based rating agency said it had issued the stable rating outlook based on the resilience of the Kenyan economy as a result of ongoing structural changes, which over time should boost the country’s wealth levels adding that institutional reforms that are taking place should reduce political risks.

The amount that the Treasury intends to borrow through the eurobond is contained in an International Monetary Fund (IMF’s) economic review report released on Wednesday.

The highest rating assigned to the strongest and politically stable economies is triple A (AAA), while B1 is classified as “speculative high credit risk”.
Weyinmi Omamuli vice president and senior analyst of the sovereign risk group at Moody’s said that if Kenya’s oil finds are commercially viable they would help reduce its dependence on expensive imports which would reduce is deficit and help balance out the current account.

The IMF report said that as part of the Kenya government upcoming plans and reforms, Treasury have set a primary deficit ceiling of two per cent of the gross domestic product, which is consistent with the IMF objective to reduce the debt-to-GDP ratio, but that it has accommodated one-off outlays to prepare for the elections in March next year.

“In the medium term, the authorities plan to reduce further the primary deficit to 1.3 per cent of GDP, with the objective to bring the government debt-to-GDP ratio below 42 per cent by end FY 2014/15 and issue the planned $1 billion sovereign bond in FY 2013/14,” notes the IMF report.

In a letter of intent dated October 5 from the Treasury to the IMF, the government says that its priority remains to attract concessional financing and concessional guarantees for key energy and infrastructure projects and to strictly monitor borrowing on commercial terms, adding that it is taking administrative steps to ensure timely servicing of external debt.

“We plan to issue a sovereign bond in 2013/14 or sooner to repay the syndicated loan we contracted in May 2012,” notes the disclosures in the letter of intent that is attached to the review report.

Deputy director of economic affairs at the Ministry of Finance, Henry Rotich told Business Daily in a telephone interview that this is just one option that the Treasury was considering to pay the Sh52 billion ($600 million) syndicated loan it borrowed from a consortium of international banks.

The IMF said that at the end of October it approved the disbursement of an additional Sh9.15 billion ($110.5 million), bringing total disbursements under the extended credit facility arrangement to about Sh43.87 billion ($529.6 million).

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