S&P lowers Kenya’s outlook to negative citing high debt

Kenya's economic prospects have taken a hit as credit rating firm S&P downgraded the country's outlook from stable to negative, citing high debt levels and interest burdens that are exacerbated by the ongoing COVID-19 pandemic. Chief Economist at Mentoria Economics, Ken Gichinga, provided his insights on the matter during a recent interview with CNBC Africa. Gichinga highlighted the pressing issue of debt accumulation in Kenya, emphasizing the need for a shift towards sustainable economic growth that is not reliant on continuous borrowing. The downgrade from S&P underscores the compromised fiscal position of Kenya, which has been further strained by disruptions in revenue collection due to the pandemic's impact on businesses. One of the key suggestions put forth by Gichinga is for the government to reassess its role in the economy and consider divesting from certain sectors to allow the private sector to play a more prominent role. By focusing on areas that are uniquely within the government's mandate, such as law and order, the government could potentially reduce its budgetary requirements and reliance on borrowing. The negative outlook does not bode well for investments in Kenya, particularly in terms of borrowing costs. With higher interest rates on the horizon, the cost of servicing debts is set to increase, posing a significant challenge to the country's financial sustainability. Gichinga emphasized the need for a fundamental reassessment of Kenya's fiscal policy to address the growing debt burden. Kenya's debt trajectory was already concerning prior to the pandemic, with experts warning of its unsustainable levels. The economic shock caused by COVID-19 has further complicated the situation, highlighting the urgency for reform and responsible financial management. Gichinga stressed the importance of reducing public wastage and reallocating responsibilities to other entities to alleviate the pressure on the government. In terms of solutions, Gichinga proposed a dual approach focusing on fiscal and monetary policy reforms. The country needs to reevaluate its tax collection strategies and broaden the tax base to ensure sustainable revenue generation. Additionally, facilitating easier access to credit for the private sector can spur economic growth and job creation, ultimately aiding in the country's financial stability. As Kenya navigates through the challenges posed by its negative outlook, decisive actions will be crucial in steering the economy towards a more sustainable and resilient path. The government's commitment to implementing reforms and collaborating with the private sector will be instrumental in addressing the current economic concerns and paving the way for a stronger financial future.