VZCZCXYZ0050
PP RUEHWEB
DE RUEHNR #4020 2571445
ZNR UUUUU ZZH
P 141445Z SEP 06
FM AMEMBASSY NAIROBI
TO RUEHC/SECSTATE WASHDC PRIORITY 4304
INFO RUEHXR/RWANDA COLLECTIVE PRIORITY
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
UNCLAS NAIROBI 004020
SIPDIS
DEPT FOR AF/E, AF/RSA
DEPT ALSO PASS TO USTR FOR BILL JACKSON
TREASURY FOR OREN WHYCHE-SHAW
SIPDIS
E.O. 12958: N/A
TAGS: EFIN ECON ETRD KE
SUBJECT: S Gives Kenya Sovereign Credit Rating Grade B
REF: NAIROBI 3068
1. Summary: In its first sovereign credit review, Kenya earned a
"stable" outlook, grade 'B+' long-term foreign currency, and 'BB-'
long-term local currency credit ratings from Standard and Poor's
(S), making GOK securities below the minimum BBB- rating for
investment grade. The private sector in Kenya had called for such a
review. The GOK hopes it will lead to reduced interest rates and
increased investment, and may see the rating as a viable substitute
for an active IMF program. End Summary.
2. In his June 15 budget presentation, Finance Minister Kimunya
announced that the GOK would hire Standard and Poor's to carry out a
credit review and provide Kenya its first sovereign rating. The
private sector has for several years called for the review, and
Kimunya declared it would improve Kenya's creditworthiness and
encourage foreign direct investment. Kimunya also believed it would
stimulate domestic investment through lower interest rates, as
cheaper financing from international markets forces banks in Kenya
to compete by lowering their rates.
3. On September 8, S Ratings Services announced it assigned Kenya
a B+ rating on long-term foreign currency and BB- rating on
long-term local currency sovereign credit ratings. S also assigned
Kenya grade B for short-term foreign and local currency ratings, and
noted Kenya's outlook is stable. Kenya's rating is equal to Benin,
Ghana and Senegal, above ratings for Madagascar, Mali, Burkina Faso,
and well below South Africa's. The rating cited Kenya's economic
growth and other positive factors. It noted that Kenya's political
environment is often partisan, but the government has passed a
number of economic reforms. Challenges facing the government
include progress on prosecuting corruption cases, a high level of
infrastructure and development needs, high oil prices, and
appreciation in the Kenyan shilling.
4. In S's public statement, credit analyst Tim Reid stated, "The
ratings on Kenya are constrained by low levels of economic
development and by a vulnerability to exogenous shocks, generated
both externally, by terms-of-trade deterioration, and domestically,
by governance scandals. The ratings are supported, however, by the
government's continued progress in implementing economic reform and
by the strengthening of macroeconomic and political stability...We
expect the Kenyan government to continue pursuing prudent
macroeconomic policies that reinforce confidence and stimulate
economic growth... Positive ratings momentum could be generated by
more broad-based economic growth, underpinned by a better investment
environment within the country." The S statement noted that "A
loss in momentum in the government's reform agenda and any
indication of significant fiscal slippage would undermine Standard &
Poor's assessment of the sovereign's creditworthiness."
5. S's BB grade means an obligation is less vulnerable to
nonpayment than other speculative issues. However, it faces major
ongoing uncertainties or exposure to adverse business, financial, or
economic conditions which could lead to the obligor's inadequate
capacity to meet its financial commitment on the obligation. S's
lower B rating means an obligation is more vulnerable to nonpayment,
but the obligor currently has the capacity to meet its financial
commitment on the obligation. Adverse business, financial, or
economic conditions will likely impair the obligor's capacity or
willingness to meet its financial commitment on the obligation.
6. Comment: We understand that BBB- is the minimum sovereign rating
for government bonds to be considered investment grade, but the GOK
regards the rating as very positive and hopes it will help attract
investment. Even if the GOK regards the S rating as a possible
substitute stamp of approval in place of an IMF program, the S
rating explicitly lists the same areas needed for improvement as
have the donors. We will see if the GOK can use the S finding to
push through the reforms everyone agrees are needed to improve
Kenya's competitiveness, attract investment and sustain higher
economic growth.
Ranneberger