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Kenya's bond rating


I write today in order to give the government of Kenya some credit for creativity in the face of adversity. 

This week a key bond rating agency, Fitch, downgraded the sovereign bonds of Kenya, from B to B-. As influential rating agencies go, Fitch is on a par with Moody's on the one hand and Standard & Poor's on the other. As it happens, Moody.s downgraded Kenya earlier this year. The S&P may announce a grading change on August 23d.

The change from B to B- is not a plunge into "junk bond" territory.  What are, sometimes unfairly, called junk bonds are more generously called "speculative bonds" in contrast to the widows-and-orphans are safe with these ("investment grade") bonds. The line between investment and speculation is, on the Moody's system, the line between triple B and double B. Accordingly, Kenya as a single B country, was already in junk bond terrain. The addition of a minus sign is an incremental indication of greater odds of default.

Kenya has replied not by railing against the evil bond markets and their rating agency, but by a shift in the way they finance/borrow for their operations: a shift from the Treasury's balance sheet to project-by-project borrowing. 

Why did the downgrade happen? Fitch is responding I believe to the bitterness of the popular protests against the finance bill.  The protests, which involved among much else a crowd storming the parliament building on June 26th of this year, did lead to a Presidential decision against signing the bill.  [The President, William Ruto, is pictured above.] So in that sense the popular will "won". But ... it sure spooked international finance and, with that, the prospect of outsider investment money aiding in the economic growth of the country has lessened. 

The day after Fitch's downgrade, the news from Kenya included this: https://www.bloomberg.com/news/articles/2024-08-03/kenya-economy-treasury-nominee-plans-to-shift-debt-to-multilateral-loans?utm_source=flipboard&utm_medium=activitypub  -- a creative move. Necessity is the father of invention. 

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