Fitch concerned over Kenya, Uganda aggressive borrowing

Wednesday June 17 2015

Kenya and Uganda risk losing their good credit rating if they continue borrowing heavily to support their ambitious infrastructure projects, analysts at Fitch Rating have warned.

“Kenya’s and Uganda’s financial year 2016 budgets (for the financial year to end-June 2016) push fiscal consolidation further out into the future, risking an increase in debt which, if sustained, could undermine their sovereign ratings.

“Rwanda’s budget foresees faster consolidation, but medium-term fiscal targets may prove challenging as direct budget support from foreign donors falls,” said analysts at Fitch.

Continue sourcing

Fitch has maintained a ‘B+’ rating with a stable outlook for Kenya while Uganda has a ‘B’ rating with a positive outlook.

Strong ratings enable governments to borrow at favourable rates and would be welcome since the Treasury has said it plans to go and borrow again from the international market.


“Last year our debut Sovereign Eurobond was received with a lot of enthusiasm by foreign investors, once again underscoring the confidence foreign investors have in our economy. “Going forward, we intend to continue sourcing these type of funds, including from export credit agencies and syndicated loans,” said Treasury Cabinet secretary Henry Rotich in the 2015-2016 fiscal year national budget.

Other analysts say Kenya is borrowing more than other countries in the region and wonder why the Treasury is increasingly borrowing even when some of the funds never reach their intended users.

“The size of Kenya’s debt is a point of concern especially when considered from two fronts. One, by regional standards, Kenya’s debt-to-GDP ratio (at about 46 per cent) stands way above regional peers such as Uganda at about 35 per cent and Tanzania at about 34.7 per cent. Secondly, leakages through such avenues as corruption raising fundamental questions about the use of mobilised revenue in the country,” said Julians Amboko, a research analyst at StratLink Global.

Total public debt stands at Sh2.4 trillion which is equivalent to at least 46 per cent of the general economy.

Following Mr Rotich’s signal for more external borrowing, the debt levels are expected to rise to the highest level in the past decade over the coming financial year.

“The authorities expect Kenya’s debt-to-GDP ratio to breach 50 per cent in this fiscal year, the highest level since 2004,” said analysts at Fitch. Some of the mega infrastructure projects that the government is undertaking that are capital intensive include the standard gauge railway, the plan to add 5,000 megawatts by 2017, rural electrification and the annuity roads programme that will increase the tarmac road network by 10,000 kilometres.

The Lamu Port South Sudan-Ethiopia Transport (Lapsset) corridor construction should also kick off any time soon. The Treasury has allocated Sh13.2 billion for geothermal development, Sh14.9 billion for rural electrification while road construction will get Sh58.5 billion.

Uganda, Rwanda and Tanzania are also undertaking other mega infrastructure projects which have been touted as the economic growth drivers in the region.