Ratings agency Moody’s maintains stable outlook for Kenya

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The agency said Kenya’s economic growth is expected to remain solid, helped by enhanced infrastructure spending which will boost productivity, a rapidly expanding services sector and improvement in the country’s terms of trade.
Kenya is expected to realise a 5.5 per cent GDP growth for 2016 backed by expansion across all main sectors of the economy, the agency said, adding that the growth is seen rising to six per cent by 2018.
An expected round of austerity measures by the government over the next three years is also expected to boost the economy by reducing Kenya’s reliance on external debt financing.

Ratings agency Moody’s has maintained a stable outlook on Kenya, citing buoyant infrastructure-driven growth and declining fiscal and current account deficits.

The agency said Kenya’s economic growth is expected to remain solid, helped by enhanced infrastructure spending which will boost productivity, a rapidly expanding services sector and improvement in the country’s terms of trade.

“Kenya is well-positioned to benefit from greater economic integration in East Africa over the coming years, further cementing its economic position within the region,” Moodys said.

Kenya is expected to realise a 5.5 per cent GDP growth for 2016 backed by expansion across all main sectors of the economy, the agency said, adding that the growth is seen rising to six per cent by 2018.

“The drivers will remain broad-based and include continued albeit declining public investment spending and productivity gains from the completion of key infrastructure projects, notably the standard gauge railway, greater regional integration, robust household consumption supported by low inflation and fuel prices and a recovery of the tourism sector,” it said.

An expected round of austerity measures by the government over the next three years is also expected to boost the economy by reducing Kenya’s reliance on external debt financing.

“It will also directly address investor concerns over the country’s domestic and external imbalances,” Moody's said.

The Treasury targets to grow revenue to an estimated 21.4 per cent of GDP over the next three years, from 20.3 per cent in 2014/15, while slashing expenditure to 26.5 per cent of GDP from 29.6 per cent in 2014/15.

“We expect debt levels will peak at 50 per cent of GDP in 2016, and begin trending downwards thereafter alongside Kenya’s debt affordability” the agency said.

Further, the country’s current account deficit is expected to narrow from 9.5 per cent of GDP in 2015 to around 6.7 per cent over the next three years, supported by the positive terms of trade and the decline in capital imports related to infrastructure projects.

This will allow Kenya to reduce external debt financing from the current high levels. The government has lately increased spending on construction of a key infrastructure including a modern standard gauge railway, roads and power plants, piling pressure on the budget.