With new waves and strains of the virus being reported globally, the pandemic will continue to impact global credit and economies as a whole for the near future.
Following rising fiscal and external pressures on the Kenyan economy, the American credit rating agency, Standard & Poor’s (S&P) Global Ratings, has downgraded the country’s sovereign rating from B+ to B.
Explaining the performance indicator, which comes at a time when the country has entered into fiscal advisory partnerships with both the World Bank and the International Monetary Fund (IMF), S&P explained that despite the country’s diversified economic base, it is still constrained by a history of ethnic conflicts especially towards elections, high fiscal deficits and a low GDP per capita.
With the preparing for possible BBI referendum this year and an election in 2022, amid increased government expenditure as loans mature in the year, the economy faces the unprecedented pressure of reducing its deficit and increasing its revenue. In fact, according to Mark Bohlund, Senior Credit Research Analyst at RED Intelligence, it is time that Kenya’s economic managers decreased Government revenue to GDP ratio, lowered fiscal deficits and allow the shilling to depreciate.
“Substantial revenue increases and expenditure rationalization is expected to be a difficult task ahead of the planned constitutional referendum in 2021 and a general election in 2022,” said Bohlund.
And even though the country continues to receive support from the IMF, which helps it to raise revenue and minimize the gaps that allow for tax evasion, invariably, the government has always increased its annual expenditure, causing a continued decline in revenue as a share of the GDP. Economic prudence calls for a need to change the country’s expenditure policy to prevent the country from facing an impossible situation of fiscal unsustainability.
S&P’ expects that the COVID-19 pandemic is expected to continue playing a role in global credit factors in 2021 despite the availability of a vaccine. With new waves and strains of the virus being reported globally, the pandemic will continue to impact global credit and economies as a whole for the near future.
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