The International Monetary Fund (IMF) has raised its assessment of Kenya’s external debt distress to high from moderate attributing it to the economic impact caused by the coronavirus pandemic.
“The risk of debt distress has moved to high from moderate due to the impact of the global Covid-19 crisis which exacerbated existing vulnerabilities,” the IMF said in an assessment published on Tuesday.
According to IMF, the pandemic is taking a serious toll on the Kenyan economy, significantly reducing growth, creating fiscal and external financing needs.
“The pandemic has impacted nearly all facets of the economy—particularly tourism, transport, and trade—and led to urgent balance of payments and fiscal financing needs,” Mr. Tao Zhang, Deputy Managing Director and Acting Chair stated.
In its assessment, IMF says: “It is important that the authorities resume their fiscal consolidation plans to reduce macroeconomic vulnerabilities once the crisis abates.”
Last week, Moody’s Investors Service revised the outlook on Kenya’s rating to negative from stable but maintained the rating at B2, which still reflects a high credit risk. Moody’s cited the deteriorated economic and fiscal outlook.
“While this may have already been largely priced in the Eurobonds, the domestic yield curve hasn’t been materially shaken by the recent developments. The government has ratcheted up local borrowing, banks’ liquidity demand has increased and sentiment soured, yet the adjustment in yields has been limited,” NCBA Research Team says in its Weekly Fixed Income report published on Monday.
This is largely explained by sound interbank liquidity mostly on the back of government payments.
According to the Central Bank of Kenya, the average interbank rate was 4.05 percent on May 7 compared to 4.27 percent on April 30.
IMF says its disbursement of US$739 million (about Ksh79Bn) under the Rapid Credit Facility (RCF) may help minimize the government’s borrowing pressure, limiting the upside on yields.
