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Viewing cable 06NAIROBI4020, S&P Gives Kenya Sovereign Credit Rating Grade B

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Reference ID Created Released Classification Origin
06NAIROBI4020 2006-09-14 14:45 2011-08-25 00:00 UNCLASSIFIED Embassy Nairobi
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&P 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&P), 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&P 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&P 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&P'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&P 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&P'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&P'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&P rating as a possible 
substitute stamp of approval in place of an IMF program, the S&P 
rating explicitly lists the same areas needed for improvement as 
have the donors.  We will see if the GOK can use the S&P finding to 
push through the reforms everyone agrees are needed to improve 
Kenya's competitiveness, attract investment and sustain higher 
economic growth. 
 
Ranneberger