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S&P lowers Kenya’s outlook to negative over debt, interest burden

Central Bank of Kenya
Central Bank of Kenya building in Nairobi. FILE PHOTO | NMG 

Global ratings agency S&P has revised Kenya’s outlook from stable to negative over high debt and interest burden that could be worsened by the Covid-19 pandemic.

The negative outlook reflects the worsening fiscal position of the country amid the impact of the pandemic on the economy and disruptions to revenue collection.

The coronavirus pandemic has triggered layoffs and declined revenues with service sectors including transport, retail, tourism and aviation being the most affected, save for the agriculture sector. Disruptions in the supply chains coupled with weakened local demand has also affected the manufacturing sector.

As a result, government revenue collections is expected to take a hit. Treasury data indicates tax collections by the Kenya Revenue Authority (KRA) dropped by 14.46 percent or Sh20.31 billion to Sh120.1 billion in April from Sh140.41 billion in same month last year.

The drop points to the existing tough environment for both consumers and businesses amid the Covid-19 pandemic.


“The Covid-19 pandemic will slow Kenya's GDP growth significantly in 2020 and weigh on its already weak public finances,” S&P Global said.

“The ratings could also come under downward pressure if the ultimate economic fallout from the pandemic and weaker policy momentum derailed Kenya's efforts to curb its twin fiscal and external deficits, pushing external debt up, and/or weakening external liquidity beyond our current projections.”

The rating agency sees the economic crisis would widen the budget deficit to 8.7 percent of GDP in the year ended June 2020 before falling slightly to 7.9 percent in financial year 2020/2021.

The public debt was recorded at Sh6.28 trillion as at March and is expected to close at Sh6.6 trillion in financial year 2019/20.

In the current financial year, which began on July 1, the government expenditure is estimated at Sh1.888 trillion of which Sh431.5 billion is expected to be funded through Appropriations-in-Aid, with the gap financed by a combination of ordinary revenue and borrowing.

“Although external financial support, including from the IMF, will help fund Kenya's twin fiscal and external deficits in 2020, external debt will rise sharply in 2020 and remain high in 2020-2023,” it stated.

“We could also revise our outlook to stable if Kenya reverts to strong GDP growth and fiscal consolidation more rapidly than expected, which would in turn help address debt vulnerabilities.”

At the same time, the agency affirmed a 'B+' long-term and 'B' short-term sovereign credit ratings.