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Moody's maintains a negative outlook for Kenya
Kenya is among 65 countries in the world whose sovereign credit worthiness will maintain the negative status next year, according to the 2021 Moody’s Sovereign Outlook. David Rogovic, Senior Analyst at Moody's joins CNBC Africa for more.
Fri, 20 Nov 2020 15:16:25 GMT
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AI Generated Summary
- Kenya's fiscal outlook has deteriorated due to persistent large deficits, rising debt burden, and narrowing tax base, exacerbated by the impact of the coronavirus pandemic.
- Increased liquidity risk, stemming from the structure of Kenya's debt stock and constrained funding options, further complicates the country's economic recovery.
- To move towards a stable outlook, Kenya must maintain diverse funding options, contain borrowing costs, and implement structural fiscal reforms to narrow the deficit and reduce the debt burden over time.
Kenya is among the 65 countries around the world whose sovereign credit worthiness will remain in negative territory going into the next year, according to the 2021 Moody's Sovereign Outlook. David Rogovic, a Senior Analyst and Vice President at Moody's, shed light on the reasons behind Kenya's negative status and highlighted the challenges the country faces in stabilizing its economic outlook. The decision to downgrade Kenya's rating was primarily driven by two key factors: the deterioration in the country's fiscal outlook and an increase in liquidity risk. Rogovic emphasized that the persistent large fiscal deficits, rising debt burden, and narrowing tax base have weakened Kenya's fiscal profile over the years. The impact of the coronavirus pandemic has further exacerbated these preexisting fiscal trends, making fiscal consolidation a challenging task for the government. Additionally, the structure of Kenya's debt stock, characterized by a significant portion of short-term domestic debt and external debt owed to commercial lenders, has heightened liquidity risks for the country. The lack of decline in borrowing costs due to larger fiscal deficits has further constrained Kenya's funding options, posing additional challenges for the economy. The recent call from the IMF and the World Bank for Kenya to participate in the Debt Service Suspension Initiative (DSSI) has raised questions about the country's economic recovery in the short term. Rogovic explained that while borrowing from concessional lenders like the World Bank and IMF can help reduce the government's reliance on expensive commercial external sources, the immediate impact on the economy may be limited. To move towards a stable outlook, Rogovic emphasized the need for Kenya to maintain diverse funding options, contain borrowing costs, and implement structural fiscal reforms to narrow the fiscal deficit and reduce the debt burden over time. The ongoing talks between Kenya and its creditors, including the Paris Club Agreement, aim to alleviate some of the debt challenges facing the country. Rogovic noted that pushing out debt payments through initiatives like the DSSI could provide temporary relief from immediate liquidity pressures but may not address the bigger issue of a growing debt burden. China's involvement in Kenya's debt restructuring efforts has played a significant role, given the country's debt owed to Chinese policy banks. The willingness of these banks to participate in debt relief initiatives will impact the extent of liquidity relief Kenya receives. Rogovic highlighted the shift in Kenya's debt structure towards bilateral debt from Chinese policy banks at the expense of concessional debt from multilateral institutions like the World Bank. Overall, Kenya faces an uphill battle in stabilizing its economic outlook, with the need for comprehensive fiscal reforms and sustainable debt management strategies to navigate the challenges ahead.
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