Fitch Ratings, one of the three major Credit Rating Agencies in the world, sees Kenya’s economic outlook as stable with a long-term debt rating of B+. The favourable ranking is due to the robust GDP growth experienced in 2018, evened out by trade and budget deficits as well as high government debt.
Kenya’s economy grew by 6.3 per cent in 2018, the fastest growth rate in over five years and a sharp rise from the 4.9 per cent growth recorded in 2017. Fitch predicts that the GDP will expand by 5.8 per cent in the current fiscal year, a bit slower than in 2018. The service industry is projected to drive growth in the economy.
In 2019, Fitch Ratings projects that Kenya’s budget deficit will narrow to 6.6 per cent of GDP from 7 per cent registered in 2018. The company had predicted less than 6.6 per cent budget gap in 2019, but the revenue shortfalls experienced in the first half of 2018/2019 led them to revise their earlier prediction.
In 2019 and 2020, the budget gap is expected to decrease as government expenditure on infrastructure projects slows down.
Revenue collection in Kenya is quite weak due to the large portion of untaxed informal sector workers who account for 83 per cent of the working population. Although the government has put in measures to enhance tax compliance and expand the tax base, Fitch expects weak revenue growth in the next two years.
Improved exports, better oil prices, and lower expenditure on imports led to a smaller current account deficit. As per the Fitch Ratings report, the difference in the value of imports and exports decreased to 11 per cent from an average of 16 per cent between 2008 and 2017. The agency expects 2019 current account deficit to drop to 5.2 per cent.
According to the Fitch ranking, Kenya performed poorly compared to its peers in terms of fiscal deficit, external debt to GDP ratio, interest payment to revenue ratio, and governance indicators.
