This archive report was first published on 30 June 2020.
Kenya's credit rating downgrade from B+ to B- by Fitch Ratings and from stable to negative by Moody's has sent shockwaves through the country's financial markets. The downgrade, announced last week, has significant implications for Kenya's ability to borrow and manage its debt.
According to estimates, Kenya requires Sh904 billion to repay its loans in the upcoming 2020/2021 financial year. However, with the credit rating downgrade, the country's ability to access commercial loans from global financial markets has been severely impacted. This raises the cost of borrowing and makes it unwise for a struggling economy like Kenya's to take on more debt.
Despite the challenges, the credit rating downgrade presents an opportunity for the Treasury to take a fresh look at its debt management strategy. In a recent article, it was suggested that the Treasury Cabinet Secretary, Ukur Yatani, could take four key steps to address the country's debt challenges.
Firstly, the CS could lead the country in accepting the Group of 20 industrialised countries' offer to freeze the repayment of debts following the global outbreak of the coronavirus epidemic. This would reduce the burden on the country and provide much-needed relief.
Secondly, President Uhuru Kenyatta could lend his support to the CS in compelling all ministries, departments, and agencies (MDAs) to utilise the Sh1.1 trillion already given to the country in concession loans and grants before expecting new money in the coming financial year.
Thirdly, the CS could increase pressure on the office of the Director-General of debt management headed by Haron Sirima to restructure and reschedule current loans to give the country some breathing space.
Lastly, the Treasury should speed up the establishment of its proposed bank that would assist Kenyans to set up industries in areas that offer the highest return on investment.
By taking these steps, the Treasury can ensure fiscal prudence and address the country's debt challenges. It is time for Kenya to take a fresh look at its debt management strategy and prioritize the country's economic stability.
