Fitch says fiscal, external risks keep Kenya’s outlook negative
Fitch has assigned Kenya a negative outlook on account of elections, the Russia-Ukraine war and high public debt.
The global rating agency says the economy will slow down from 6.5 per cent in 2021 to 6 per cent in 2022 due to the August General elections.
“Fiscal, external risks keep outlook negative: Kenya’s B+ rating is supported by a record of strong growth and relative macroeconomic stability,” Fitch said in a report.
The rating agency forecasts a moderate disruption, based on events around the 2017 polls. However, the report says violence will be below that of the 2007 and 2012 polls.
The US-based agency further says the negative outlook reflects uncertainty about planned fiscal consolidation and risks to economic growth around the August 2022 general election.
Pressure on account deficit
Furthermore, the surge in global commodity prices puts upward pressure on inflation and the current account deficit.
Fitch however says the $2.4 billion International Monetary Fund (IMF) funding could help plug the financing gap and reduce pressure on the economy due to the tough funding landscape caused by the Russia-Ukraine conflict.
“These positive factors are balanced against elevated public debt, high net external indebtedness, and GDP per capita and governance indicators that are below the ‘B’ range median,” the agency says.
Fitch expects the government to make some progress on cutting its expenses, but the budget deficit will remain high, adding that tax revenue as a ratio to output will remain below pre-pandemic levels to 2023.
“High levels of tax expenditure and poor compliance have left Kenya with a declining tax base in recent years,” Fitch says.
The report forecasts the general government deficit to narrow to 7.8 per cent of GDP from 8.2 per cent in FY21. The fiscal deficit should narrow further, to 6.8 per cent of GDP, as relatively strong growth and improvements in tax administration raise revenue performance.
