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Fitch warns three EAC members risk lower rating downgrade

Monday July 06 2020
debt

Fitch said that public debt burdens in the east African region are rising fast and to a higher level than other emerging markets. PHOTO | FILE | NMG

By NJIRAINI MUCHIRA

Kenya, Uganda and Rwanda risk rating downgrade as they continue to take up new loans to tackle the Covid-19 pandemic, warns rating agency Fitch.

In its assessment of the debt situation, Fitch said that public debt burdens in the region are rising fast and to a higher level than other emerging markets.

Both Kenya and Uganda, which have borrowed $1.5 billion and $870.2 million, respectively in a span of three months, are on the negative outlook while Rwanda, which has amassed $223.6 million new loans is rated as stable.

"The coronavirus shock compounds a marked deterioration in public finances in sub-Saharan Africa, which will be challenging to reverse," said Fitch in a report released on June 30.

It added that the pandemic is having a severe adverse impact on economies through the fall in oil prices, tourism, remittances and global trade, something that is worsened by disruption of economic activities due to lockdowns and curfews.

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The report came a day after Uganda received $300 million from the World Bank in budgetary support to boost the government's capacity to prevent, detect and treat Covid-19 as well as support economic recovery and protecting the poor and vulnerable. The amount added to the $540.2 million the country has borrowed since March to tackle the pandemic.

Kenya also received $46.4 million on June 30 from the US government to support the country's Covid-19 response and recovery efforts at a time when infections are increasing rapidly.

In the assessment, Fitch forecasts the median government debt to GDP ratio for 19 countries in the region will surge to 71 per cent at the end of the year from 57 per cent last year and 26 per cent in 2012 due to the pandemic and oil price shocks. With GDP projected to fall to 2.1 per cent this year, budget deficits will widen to 7.4 per cent from 4.9 per cent in 2019.

"This combination, amplified by currency depreciation in many cases, will cause a 14 percentage point jump in the median debt ratio this year," said Fitch. Since the beginning of March, the rating agency has downgraded at least seven countries, a reflection of both the severity of the pandemic and the limited margin of resilience after the rapid rise in debt and other credit weaknesses.

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