Moody's maintains Kenya's stable outlook

Monday February 15 2016

The National Treasury building in Nairobi. Ratings agency Moody’s has affirmed Kenya’s sovereign debt rating at B1. PHOTO | FILE

The National Treasury building in Nairobi. Ratings agency Moody’s has affirmed Kenya’s sovereign debt rating at B1. PHOTO | FILE  

By IMMACULATE KARAMBU
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Global ratings agency Moody’s has predicted a stable outlook for Kenya's economy supported by infrastructure spending that is expected to boost productivity.

The firm also reaffirmed Kenya’s rating at B1, saying the country, already benefiting from the prevailing low crude prices, would significantly reduce the import bill and boost the current account balance.

The news comes at a time when the government is preparing to raise funds through a maiden sukuk bond, whose date of issuance is yet to be confirmed by the National Treasury, raising its prospects in foreign markets.

The country’s large current account deficit has also been a concern recently, with institutions such as the International Monetary Fund stepping in to offer advisory services.

“The key drivers of the affirmation are Moody’s expectations that Kenya’s growth will remain solid supported by a substantial level of infrastructure spending, a rapidly expanding services sector and a near-term improvement in the country’s terms of trade,” said Moody’s in a statement.

EAC INTEGRATION

The agency is also optimistic that the country will tap into opportunities coming out of the ongoing integration in East Africa in the coming years.

The cost of petroleum products accounts for more than a third of the country’s total import bill.

Crude prices have fallen by more than 60 per cent since mid 2014 to the current average of $30 a barrel.

The World Bank predicts that oil prices will remain below the $40 mark this year due to additional supply from Iran and declining demand from China, one of the largest consumers of crude oil.

Moody’s predicts that the current account deficit will narrow from 9.5 per cent of the gross domestic product (GDP) last year to 6.7 per cent in 2016 supported by declining capital imports relating to infrastructure projects, and consequently reducing external debt financing from the current level.

However, the firm cautioned that renewed political instability that dampens economic growth prospects and escalation of insecurity incidents that threaten performance of the tourism sector could reverse the country’s outlook.

“A significant over-performance with regard to growth, fiscal consolidation and the external position would put upward pressure on Kenya’s rating. Also credit positive would be a decline in terrorist incidents that would improve the environment for tourism,” said Moody’s.