Kenya’s economy could hit the doldrums due to the country’s heavy external borrowings, huge budget deficit, low demand for its exports and high debt distress levels.
All these economic factors, combined with the locust invasion, puts doubts on the country’s ability to cope with a widespread outbreak of the COVID19 disease.
Agusto & Company Limited, a leading Pan-African credit rating agency, has thus given Kenya a negative outlook for 2020. The agency notes that pressure on agricultural exports, tourism activities, locust invasion and COVID-19, could cut Kenya’s Growth Domestic Product (GDP) growth to 3.5% in 2020.
“Fueled with these economic factors, we expect Kenya’s debt-service to revenue in 2020 to be twice the recommended 30% threshold by the International Monetary Fund (IMF) which will put a strain on planned development expenditure and the country’s ability to fight COVID-19 should there be a widespread outbreak in the country,” said Ikechukwu Iheagwam, Country Manager, Agusto & Company Limited.
With Kenya battling its worst locust invasion in 70 years, coupled with the devastating impact of the global outbreak of the deadly Coronavirus (COVID-19) on agricultural export and tourism activities, the rating agency expects GDP growth to decelerate to 3.5% in 2020 and remain modest at 3.7% in 2021.
The rating agency has also given Kenya a “B+” sovereign credit rating.
This score reflects Kenya’s resilient macroeconomic fundamentals evidenced by an average gross domestic product (GDP) growth of 5.7% in the last decade.
This is in addition to Kenya’s position as the leading business hub within the East African Community (EAC) and the country’s diversified revenue sources from income taxes, tea, coffee, horticulture exports, diaspora remittances and tourism as well as its healthy foreign exchange reserve buffer, which has supported the country’s relatively stable Kenyan Shilling.
A combined negative effect of COVID 19 disease and a locust invasion is expected to worsen things for Kenya’s economy, including a widening fiscal deficit, external debt repayments position, foreign exchange earnings and tax collections by Kenya Revenue Authority (KRA).
Figures indicate that Kenya has consistently missed its revenue target by at least 8% since 2014/15 fiscal year. Things are expected to get worse on this front as the ongoing lockdowns in its key exports markets, remain in place.
“In 2020 we expect a strain on agricultural exports and tourism activities, key contributors to the Kenyan economy. Further, Kenya’s 2019 US$8.7 billion foreign reserve represents 5.5 months import cover which we expect to remain about the same level as receipts of foreign currency loans from international lenders is likely to have a cushioning effect,” reads the rating report.
Agusto further notes that CBK’s action to lower the policy rate and parliament’s decision to repeal the rate cap law will have a positive impact on the country’s credit market. But a stronger private sector-led credit growth will be necessary to sustain this expansionary monetary policy stance.
Kenya boasts of resilient macroeconomic fundamentals, a diversified economy, a relatively stable local currency against major international currencies and a comfortable foreign exchange reserve buffer against short-term external shocks.’ In addition, it is also the top business hub within the East Africa Community, factors that led Agusto & Co to give Kenya a B+ rating.