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Announcement:

Moody's: East African countries' rising debt burdens weigh on their fiscal and credit strength

02 Jul 2018

New York, July 02, 2018 -- Growing debt burdens in the East African countries of Kenya (B2 stable), Rwanda (B2 stable), Tanzania (B1 negative), and Uganda (B2 stable) are weighing on their fiscal strength and credit quality, Moody's Investors Service said in a report today.

The fiscal and institutional profiles of all four sovereigns will be increasingly tested in coming years managing risks associated with this higher debt burdens, deteriorating affordability, increasing reliance on non-concessional financing and exchange rate risk,

The report, "Sovereigns -- East Africa: Institutional weakness and limited policy effectiveness constrain ability to manage higher debt burdens", is now available on www.moodys.com. Moody's subscribers can access this report via the link at the end of this press release. The research is an update to the markets and does not constitute a rating action.

Government debt is highest in Kenya, where Moody's expects it to approach 60% of GDP over the next two years. The rise in government debt will be most pronounced in Uganda, where Moody's expects it to increase by six percentage points of GDP to 44.1% by 2019.

"Increasing debt burdens and deteriorating debt affordability, even when linked with public investment aimed at enhancing growth and generating foreign exchange to service outstanding debt, constrain fiscal space and weigh on our overall assessment of credit quality in Kenya, Rwanda, Tanzania, and Uganda," said David Rogovic, a Moody's Assistant Vice President -- Analyst and co-author of the report. "Their ability to contain any further rise in debt burdens for the foreseeable future, and direct limited domestic resources toward productive uses will be important credit considerations in all four countries."

Between 2012 and 2017, government debt burdens increased by 13 to 21 percentage points of GDP in all four countries. Measured as a percentage of government revenue, Rwanda has the lowest debt burden but has experienced the most rapid accumulation of debt, reflecting a transition in donor support from grants to concessional loans.

Moody's central scenario is for debt-to-GDP ratios to remain broadly stable in Tanzania, Rwanda, and Kenya. In Uganda, Moody's expects debt to increase by six percentage points of GDP to 44% in 2019.

Debt accumulation across the region has been largely driven by wide fiscal deficits, which have been biggest in Kenya due to infrastructure-related spending combined with subdued revenue collection and the rising cost of debt.

A large and rising share of external, foreign-currency denominated debt leaves Tanzania, Rwanda, and Uganda vulnerable to exchange rate depreciation risk. The composition of this debt, and whether it is owed primarily to official sector creditors or commercial creditors affects both rollover risk and debt affordability.

The large share of concessional external debt means debt remains highly affordable in Rwanda and Tanzania, while the greater reliance on commercial borrowing in Kenya contributed to worsening debt affordability. In Uganda, debt affordability has also deteriorated, reflecting a gradual shift in the composition of the debt burden towards non-concessional external borrowing and higher domestic borrowing costs.

Institutional weakness and limited policy effectiveness will constrain the ability of Kenya, Tanzania, and Uganda to manage higher debt burdens and engineer policy responses to tackle credit pressures, while a stronger institutional and policy framework in Rwanda should allow the government to effectively manage associated risk with a higher debt burden.

Subscribers can access the report at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1131399

NOTE TO JOURNALISTS ONLY: For more information, please call one of our global press information hotlines: New York +1-212-553-0376, London +44-20-7772-5456, Tokyo +813-5408-4110, Hong Kong +852-3758-1350, Sydney +61-2-9270-8141, Mexico City 001-888-779-5833, São Paulo 0800-891-2518, or Buenos Aires 0800-666-3506. You can also email us at mediarelations@moodys.com or visit our web site at www.moodys.com.

This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on www.moodys.com for the most updated credit rating action information and rating history.

David Rogovic
Asst Vice President - Analyst
Sovereign Risk Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Matt Robinson
Associate Managing Director
Sovereign Risk Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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