Moody's has downgraded Kenya's credit rating, here’s what that means for the country
![Moody's has downgraded Kenya's credit rating, here’s what that means for the country Moody's has downgraded Kenya's credit rating, here’s what that means for the country](https://citizentv.obs.af-south-1.myhuaweicloud.com/128559/conversions/Moody%27s-og_image.webp)
A signage is seen outside the Moody's Corporation headquarters in Manhattan, New York, U.S., November 12, 2021. photo/ Reuters
Global rating agency Moody's recently
downgraded Kenya's credit rating, painting a bleak picture of the country's
economic status in terms of fulfilling debt obligations.
The country
moved from B3 rating, whereby the country's debt obligations are speculative
and subject to high credit risk, to Caa1 rating, whereby the obligations are
poor and subject to 'very high credit risk.'
Moody's
attributed the downgrade to Kenya's inability to effect fiscal consolidation
measures that would lower the risk of defaulting.
The agency also projected that the government
would not be able to introduce more revenue raising measures due to heightened
social tensions following the Gen Z protests that have rocked the country in
the past month.
In this piece,
Citizen Digital delves into the credit rating, how it's done, and its
implications on a country's projected outlook.
What
does Moody's do?
Moody's is a
New York based company that rates the creditworthiness of corporates and
governments. It uses Moody's Analytics, a software that provides data to enable
investors make sound decisions. It was founded in 1909 by John Moody, an
American financial analyst who also pioneered the rating of bonds.
How is the credit rating calculated?
When rating
countries, Moody's considers several factors such as industry trends,
regulatory environment, geopolitical factors, financial ratios, cash flow, debt
levels, market position and management quality.
Types
of Ratings
Moody's
ratings reflect the likelihood that a country may default and any financial
loss suffered in the event of a default.
The highest
rating is Aaa whereby a country's obligations are of minimal risk and of the
highest quality.
It drops
down to C whereby the country has already defaulted with little chances of
recovery.
Implications
for Kenya
A lower
grade for Kenya means that the global agency projects that Kenya is at a higher risk of defaulting on its debt obligations owing to financial uncertainty. The
rating also raises concerns over the country's ability to manage debt and
economic policies effectively.
To an
average Kenyan, a downgrade will affect them in the long term owing to
disruption of ease of doing business. A lower rating means that the borrowing
costs for both the government and private entities is projected to increase. In
turn, this means that interest rates on loans could hike leading to a tougher
economy for Kenyans grappling with the cost of living.
Investors
will also become wary of a lower rating and may opt to pour their funds in
other markets.
The
government's capacity to raise funds for developmental projects may be hindered
owing to the concern arising from the credit rating.
The credit
rating means that the government should opt for ways to maintain a fiscal
balance to create a conducive business environment.
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