Failure to cut the budget deficit and stabilise debt level will be a negative for Kenya’s credit profile, global ratings agency Fitch Ratings has warned.
The firm on Friday said effective implementation of a fiscal consolidation plan and stabilisation of debt-to -GDP ratio will lead to a positive rating.
“The impact on Kenya’s sovereign credit profile will depend on the authorities’ ability to deliver ambitious revenue increases and keep control of spending in an election year,” said the firm in new outlook.
The Treasury targets to reduce the fiscal deficit to six per cent of GDP, from a projected 8.3 per cent in the financial year 2017.
Treasury secretary Henry Rotich told Parliament that the government would “reduce the fiscal deficit and ensure the continued sustainability of our debt” and that one-off expenditures seen in the current financial year such as the Sh19.3 billion election-related costs are not expected to recur.
“At around 55 per cent, Kenya’s government debt to GDP ratio remains slightly below the ‘B’ category median, but failure to narrow the budget deficit could increase the stock of debt,” says Fitch.
It notes the August elections present the most significant risk to fiscal consolidation, as potential social and economic disruption could reduce growth, leading to lower revenue collection.
“The election is also likely to contribute to higher-than-expected current expenditures through the first half of Financial Year 2018,” it said.
Credit: Business Daily