Govt welcomes new credit rating

November 23, 2010
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, NAIROBI, Kenya, Nov 23 – The government has welcomed last week’s upgrading of Kenya’s sovereign credit rating by Standard & Poor’s (S&P).

Finance PS Joseph Kinyua termed it a ‘clear’ indication that the economy is back on the growth trajectory.

Mr Kinyua said this was testimony that Kenya was a secure investment destination with strong ability to honour its foreign debt obligations.

“The S&P rating is a clear indication that the economy is bouncing back and that investor confidence has significantly improved following the promulgation of the new Constitution,” he said in a statement.

The rating agency on November 19 upgraded the country’s long term foreign currency rating from ‘B’ to ‘B+’ and affirmed its short term rating of single ‘B’ with a stable outlook.

Mr Kinyua expressed confidence that the country would get further upgrades of the rating as it continues with the prudent management of the economy and as it embarks on the implementation of the devolved system of governance as provided for in the new Constitution.

“Indeed, the upgrading of our infrastructure network and the reforms being implemented to remove hurdles on businesses will enhance further the investment environment,” the PS stated.

Mr Kinyua also pointed to the recent classification of the country’s debt sustainability as ‘low risk’ adding that it would go a long way in boosting Kenya’s chances of issuing a successful sovereign bond, which has been deferred for over three years.

“We will of course continue to monitor developments in the global markets with a view to determine an appropriate time to issue the sovereign bond to finance our critical investments as envisaged under Vision 2030,” the PS stated.

He further underscored the importance of the favourable ratings, saying they would boost Kenya’s visibility in the international markets and set the stage for the corporate sector to tap into these markets to enable them to fund their operations.

Market analyst Razia Khan termed the upgrading as expected given the calm that followed the post election turbulence – which prompted the country’s downgrade, as well as the passage of the new Constitution.

The Standard Chartered Head of Regional Research for Africa said: “According to S&P’s assessment, political risk has fallen since the constitutional referendum and a greater level of cooperation between political parties is now anticipated.”

Ms Khan however cautioned that some political risks remain as most of the provisions in the new law require further legislative action before they are enacted.

Nonetheless, she acknowledged that economic reforms and government’s efforts to address infrastructural constraints support the country’s ratings.

In addition, the country benefits from a ‘sophisticated’ debt market and relatively low external debt of only 26 percent of Gross Domestic Product.

The question that now arises is whether the country needs to float the planned $500million bond given the vibrant domestic borrowing environment.

But since its revenue collection seems to have fallen below target, Ms Khan foresees a situation where this may begin to exert more pressure on domestic yields.

“This may well be reinforced by monetary policy normalisation when it eventually becomes necessary. We therefore expect talk of Eurobond issuance to be revived in the 2012/2013 financial year,” she projected.
 

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