One of the 3 major Global rating agencies, Moody’s has announced that Kenya’s credit scores are set for review. The downgrade of our B1 rating is the likely outcome. B1 is already classed as ‘high credit risk’ by Moody.
The reasons for Kenya’s downgrade will be large deficit run by the Government and its high-cost borrowing drive. Government debt as a share of GDP stands at 56.4% but the Vice President has said before that this is comfortably below Kenya’s red line of 75%.
Another reason given by Moody is the uncertainty in direction of economic and fiscal policy in Kenya. The review will assess Kenya’s capacity to address the challenges.
A downgrade is bad for Government. What does this mean for your business though:
1.Increased business costs
Just like it happens with us, common folk, when the Government is downgraded it finds borrowing to be much more expensive. This means it will shy away from borrowing. Instead, it will squeeze the last drop of juice out of its revenue sources. Your business is a source of revenue for Government. You can expect the Government to start nibbling your income with a tax assault here and there.
2.Weaker shilling
A weaker shilling means exactly what it means. Your money will go less further than it does now. This means you need to prepare to deal with challenges in your expense cutting measures. You’re probably going to have cut down across board, including your wardrobe. A weak shilling leads to imports getting more expensive. One such import is fuel which affects the price everything. Hey, on the other hand, if you’re in export business you could make major killing from this misery.
3.Decrease in investments
You remember what we said about a healthy economy? This news will have investors doing what they have been doing all year: adopting a wait-and-see approach. There is more. Foreign investors will opt to move their cash to other countries competing for their attention. You have read that Moody’s is waiting on Government direction on policy. Who wants to start a plastic bags business then have a Government agency telling you to close shop, for instance haha. So, businesses who were eyeing expansion or new ventures will be handicapped if we go on to get downgraded.
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