S&P affirms ‘B+/B’ ratings on Kenya, with a negative outlook

Global Rating agency Standard & Poor’s Ratings on April 15, 2016, affirmed its ‘B+’ long-term and ‘B’ short-term foreign and local currency sovereign credit ratings on Kenya, with a negative outlook.

S&P says the outlook is based on Kenya’s elevated external vulnerabilities which are linked to exchange rate depreciation and an increased stock of external debt during a period of volatile global financial conditions.

Despite these risks, The Ratings agency argues that Kenya’s economic growth performance remains strong and therefore affirms a ‘B+/B’ ratings.

However, the negative outlook reflects its view that there is at least a one-in-three possibility that they could lower their ratings on Kenya in the next 6-12 months.

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Ratings were based on Kenya’s history of ethnic tensions, low GDP per capita, high government debt, and susceptibility to balance-of-payments pressures.

On the other hand, positive ratings are supported by Kenya’s diversified economy with solid economic performance, particularly in a regional context, a strong private sector and growing middle class, as well as a large and deepening domestic debt market that benefits from a flexible monetary arrangement.

In terms of institutional and governance developments, S&P believes that the potential for disruptions caused by the International Criminal Court’s (ICC’s) case against Vice-President William Ruto has almost dissipated, given the ICC’s decision to drop the case.

At the same time, in S&P’s opinion, attacks by Alshabaab continue to pose security risks that could undermine economic growth.

Nevertheless, S&P notes that Kenya’s growth expectations and potential remain strong, at around 6% per year over 2016-2019, and this supports the ratings.

Conversely, if its sees improved prospects for lasting political and economic stability, S&P could revise the outlook to stable and supporting factors would include predictable and improving public finances, particularly regarding expenditure control, and funding sources, alongside a sustained improvement in Kenya’s external accounts.