Standard & Poor’s warns of a downgrade for Kenya

by Trust Matsilele 0

Global ratings firm Standard & Poor’s on Friday affirmed its B+ rating for Kenya. The ratings agency also maintained a negative outlook for the east African economy, hinting at a downgrade in the next six to 12 months. 

Kenya was last reported at B+ with stable outlook by another ratings agency, Fitch. The East African country has been facing challenges posed by terrorism and a slump in the tourism sector.

Analysts believe a downgrade will have adverse effects for a country that is in desperate need of foreign direct investment.

A credit rating is used by sovereign wealth funds, pension funds and other investors to gauge the credit worthiness of a country. This has an adverse impact on a country’s creditworthiness and borrowing costs. 

Kenya’s secondary bond market recorded an 11.6 per cent drop in turnover during the first quarter of 2016.

Eric Munywoki, Head of Research and Business Development at Sterling Capital told CNBC Africa that the country was exporting less than it was importing. He added this would affect the country’s outlook.

“We are relying much on imports which are exerting pressure on the local shilling currency. The likely[hood] between now and next year as we approach elections next year is that we might see more pressures on the economy,” he said.

Most countries in Sub-Saharan Africa are heavily driven by commodities and with challenges in this space, borrowing cost could be untenable.

“Ratings are likely to impact on the economic growth and foreign direct investments. Indications point that outlook will not be positive for the region,” he added.