A economic avalanche is coming

[gout]

• Tweet

As a prophet of doom there is likely a serious economic crisis in 2018 and beyond. Extended drought, these loans and probable diversion of funds to campaigns.

With the window open to print new constitutionally compliant notes this may offer relief or mess up things completely. It is going to be a rough road

The Treasury has in the past one month also resumed its uptake of the overdraft facility at CBK in a bid to cover some of the budget deficit.

http://www.businessdailyafrica.com/markets/news/Domestic-debt-jumps-Sh36bn-in-two-weeks-on-repeat-poll-budget/3815534-4112216-iqwiv1/index.html

[patel]

Keep monitoring the shilling vs dollar once it breaks past 105 then 110 then it's game over...

[Omollo]

Uhuru and Ruto basically decided to steal public funds to finance their campaign. Towards the end of the July the resorted to looting. The idea was that they had the whole thing under wraps. They were going to rig and Kenyans would remain quiet and subdued. They would browbeat Raila, call him names and generally get away with the heist.

On the little detail of theft, they would fix the whole thing. A new Auditor General would rubber stamp everything. A massive media campaign would promote optimism in the economy and they would borrow more money to fill up the holes. They also expected the Turkana oil to start being pumped and that would bring in the petro dollars.

As you know things simply went south. They were caught stealing. What is more, the judges refused bribes and were ready to be killed for their values.

The NIS promised to get them to read the Njoki judgement and even smuggled it inside the court. They refused. Jomo Gecaga came to Maraga's office to issue threats: Maraga refused. But somehow he assumed he had succeeded. They were celebrating at State House

So when Maraga entered the court room to read the majority opinion, it came as a lightening bolt.

[patel]

That's explains the insult from yule jamaa mtoto wa ubwa.....things are thick on the ground, we are hurting too but we are ready to endure short term pain for long term gain.

 

Uhuru and Ruto basically decided to steal public funds to finance their campaign. Towards the end of the July the resorted to looting. The idea was that they had the whole thing under wraps. They were going to rig and Kenyans would remain quiet and subdued. They would browbeat Raila, call him names and generally get away with the heist.

On the little detail of theft, they would fix the whole thing. A new Auditor General would rubber stamp everything. A massive media campaign would promote optimism in the economy and they would borrow more money to fill up the holes. They also expected the Turkana oil to start being pumped and that would bring in the petro dollars.

As you know things simply went south. They were caught stealing. What is more, the judges refused bribes and were ready to be killed for their values.

The NIS promised to get them to read the Njoki judgement and even smuggled it inside the court. They refused. Jomo Gecaga came to Maraga's office to issue threats: Maraga refused. But somehow he assumed he had succeeded. They were celebrating at State House

So when Maraga entered the court room to read the majority opinion, it came as a lightening bolt.

[gout]

The Treasury has cut development spending by Sh30 billion for the current financial year through a mini-budget in what could dim economic growth and jobs creation.

The mini-budget, which was tabled in Parliament yesterday, indicates that project spending will drop from the initial budget of Sh642 billion to Sh612 billion.

http://www.businessdailyafrica.com/economy/Repeat-poll-Sh30-billion-development-budget-cut/3946234-4115572-ltqa1h/index.html

[Georgesoros]

My neighbors kids have no jobs, neither are there any prospects. They are fully depended on their parents. It used to be the other way. The good thing is the economy will soon bring great jobs. Meanwhile, let them eat dirt.

[Kichwa]

Unemployed youth is what Ouruto needs to be scared of and not Raila. The out number the police by 100:1 and they are getting more desperate and with almost nothing to loose.

My neighbors kids have no jobs, neither are there any prospects. They are fully depended on their parents. It used to be the other way. The good thing is the economy will soon bring great jobs. Meanwhile, let them eat dirt.

[Omollo]

It is such a nice time to repatriate cash from abroad.

[gout]

'Emerging priorities' with shrinking revenues. Austerity and capitalism do not mix.

http://www.nation.co.ke/news/Stalemate-over-fresh-poll-takes-toll-on-businesses/1056-4118168-format-xhtml-paqfdfz/index.html

[Georgesoros]

How come counties did not get their allotment?
Govt should run even though elections are going on.

[patel]

Nikubaya...businesses slowly grinding to a halt soon the bottom will fall out. All eyes on the dollar.

[hk]

'Emerging priorities' with shrinking revenues. Austerity and capitalism do not mix.

http://www.nation.co.ke/news/Stalemate-over-fresh-poll-takes-toll-on-businesses/1056-4118168-format-xhtml-paqfdfz/index.html

Cutting out waste and running a lean system is good a thing. This should have been the norm, there's so much waste in government that need to be cut out. This if done properly as a private struggling company would, it could yield huge savings reducing need for debt  and high taxation. It'd be interesting to find out what percentage of development funds was utilized in last yr budget and how much is lying idle, yet every week treasury is going to the market to raise debt.

[hk]

How come counties did not get their allotment?
Govt should run even though elections are going on.

It's a supplementary budget, meaning additional funds that were not earlier allocated.

[hk]

Nikubaya...businesses slowly grinding to a halt soon the bottom will fall out. All eyes on the dollar.

CBK has $7.5b reserve http://www.businessdailyafrica.com/markets/news/Forex-reserve-rises-above-five-months-of-import-cover/3815534-4101474-pkpmbk/index.html and increasing. Because with economic slowdown it means even imports have reduced which is leading to increased dollar reserve thus buttressing the shilling.

[Georgesoros]

How come counties did not get their allotment?
Govt should run even though elections are going on.

It's a supplementary budget, meaning additional funds that were not earlier allocated.

Am not sure I agree with the way central govt just dishes out money on the hope that counties will use the money well. Most counties have not even come up with plans for basic instructor - water. Instead they are busy buying the biggest SUVs. Central should come up with partnerships where they can contribute 50% to a project if the county can raise another 50%. You'll see more projects coming up if they use their model. AM sure Uhuru or Ruto do not have any idea of such.

The idea of borrowing money and throwing it at counties will never work as long as most of these MCAs have no experience running anything.

[Kichwa]

How come counties did not get their allotment?
Govt should run even though elections are going on.

It's a supplementary budget, meaning additional funds that were not earlier allocated.

Am not sure I agree with the way central govt just dishes out money on the hope that counties will use the money well. Most counties have not even come up with plans for basic instructor - water. Instead they are busy buying the biggest SUVs. Central should come up with partnerships where they can contribute 50% to a project if the county can raise another 50%. You'll see more projects coming up if they use their model. AM sure Uhuru or Ruto do not have any idea of such.

The idea of borrowing money and throwing it at counties will never work as long as most of these MCAs have no experience running anything.

The constitution requires the national government to dish out the money.  If the national government and all the other independent bodies-auditors, DPP, parliament, judiciary, EACC, were all doing their jobs combined with a vigilant public then there would be no problem.

[hk]

How come counties did not get their allotment?
Govt should run even though elections are going on.

It's a supplementary budget, meaning additional funds that were not earlier allocated.

Am not sure I agree with the way central govt just dishes out money on the hope that counties will use the money well. Most counties have not even come up with plans for basic instructor - water. Instead they are busy buying the biggest SUVs. Central should come up with partnerships where they can contribute 50% to a project if the county can raise another 50%. You'll see more projects coming up if they use their model. AM sure Uhuru or Ruto do not have any idea of such.

The idea of borrowing money and throwing it at counties will never work as long as most of these MCAs have no experience running anything.

There's the office of controller of budget that oversees national and county government. Besides how are MCA different from Mps who have to approve national budgets?

[Georgesoros]

How come counties did not get their allotment?
Govt should run even though elections are going on.

It's a supplementary budget, meaning additional funds that were not earlier allocated.

Am not sure I agree with the way central govt just dishes out money on the hope that counties will use the money well. Most counties have not even come up with plans for basic instructor - water. Instead they are busy buying the biggest SUVs. Central should come up with partnerships where they can contribute 50% to a project if the county can raise another 50%. You'll see more projects coming up if they use their model. AM sure Uhuru or Ruto do not have any idea of such.

The idea of borrowing money and throwing it at counties will never work as long as most of these MCAs have no experience running anything.

There's the office of controller of budget that oversees national and county government. Besides how are MCA different from Mps who have to approve national budgets?

HK
The standard of governing Kenya keeps going down every year. Most MPigs have no experience running any govt, so they have no knowledge how to make laws or even enforcement. They don't even have any exposure to govt besides the fact that they have amassed money from flipping a few properties. The current system where money is just given to counties with no audit as to where it is going only works to the benefit of Waigurus. It will continue to go into peoples pockets thru inflated contracts etc. Meanwhile the Chinese want their loans repaid. For the past 5yrs is there any county that has vigorously focused on basic infrastructure? I remember Mutua did try but got distracted and reverted to doing nothing.

[Omollo]

[Omollo]

Rating Action: Moody's places Kenya's B1 rating on review for downgrade
Global Credit Research - 02 Oct 2017
New York, October 02, 2017 -- Moody's Investors Service has today placed the B1 long-term issuer rating of the government of Kenya on review for downgrade.

The decision to place the rating on review for downgrade was prompted by the following key drivers:

1) Persistent, large, primary deficits and high borrowing costs continue to drive government indebtedness higher

2) Government liquidity pressures risk rising in the face of increasingly large financing needs

3) Uncertainties weigh over the future direction of economic and fiscal policy, in part due to evolving political dynamics

Moody's review will focus on assessing:

1) The country's medium-term fiscal trends, and the likely policy response to ongoing budgetary pressures

2) The effectiveness of the government's medium-term financing plan in managing liquidity risks

3) The government's overall credit profile relative to similar-rated peers

RATINGS RATIONALE

RATIONALE FOR INITIATING THE REVIEW FOR DOWNGRADE

HIGH PRIMARY DEFICITS AND BORROWING COSTS CONTINUE TO DRIVE GOVERNMENT DEBT HIGHER

Moody's expects that Kenya's government debt burden, which has risen to 56.4% of GDP in June 2017, up from 40.5% five years ago, will continue to rise due to persistently high primary deficits and borrowing costs. Pressures on the government primary balance, which posted a deficit of 5.3% of GDP in the latest fiscal year ending June 2017, come from elevated development spending and weak revenue performance. Unless a decisive policy response is introduced, the upward trajectory in government debt will see debt-to-GDP surpass the 60% mark by June 2018.

Due to the erosion in government revenue intake in the last five years and increased recourse to debt from private sources on commercial terms, government debt affordability has deteriorated. In the latest fiscal year, the government spent 19.0% of its revenues on interest payments, up from 10.7% five years ago.

A key focus of the review will be to assess the capacity and willingness of the government to address these budgetary challenges in a comprehensive, effective and timely manner.

INCREASINGLY LARGE FINANCING NEEDS RISK PRESSURING GOVERNMENT LIQUIDITY

Moody's believes that the Kenyan government's increasingly large financing needs risk putting pressure on its liquidity position. The expected step-up in principal payments in the next few years will drive financing needs further up from an already elevated level of 19% of GDP. A key area of focus in the rating agency's liquidity analysis is the government's increasingly large roll-over of Treasury Bills, which amounted to 9.4% of GDP in June 2017, and the external debt payments to private creditors, including the $750 million Eurobond due in June 2019.

At the same time, Moody's notes that several factors support the government's access to financing resources, which ultimately can mitigate government liquidity risk. The government benefits from a relatively deep and mature financial sector, which consists of banks, pension and insurance companies with a combined asset base of more than 80% of GDP. As such, the government has been able to issue debt instruments in local currency with particularly long maturities -- the average maturity of domestic outstanding bonds was seven years as of August 2017. Moreover, the government holds roughly 6% of GDP in deposits, thereby providing a buffer in the event of adverse market conditions.

The review will assess the extent to which funding risks are sufficiently contained by the mitigating features.

UNCERTAINTIES OVER FUTURE POLICY DIRECTION AND IMPLEMENTATION

Moody's views future policy orientations and implementation as particularly uncertain given the evolving political dynamics. The latest fiscal policy statement was released last March with the Parliament's approval of the Budget for the fiscal year 2017-2018. Since then, while the Kenyan Treasury has updated on several occasions its expectations for a more adverse fiscal outlook, policy formulation has remained broadly unchanged as the country focused on the national elections.

Shortly after Kenya's general elections on 8 August this year, the Supreme Court nullified the result of the presidential election, requiring a new vote within 60 days. Whether the new vote will allow the political process to return to normalcy is unclear and the absence of a decisive outcome could distract the government from fiscal and economic reforms that would address the current fiscal and socio-economic challenges.

The review will focus on assessing the country's political configuration and whether it offers more visibility over the government policy orientation and implementation capacity.

WHAT COULD CHANGE THE RATING -- DOWN

Moody's would downgrade the rating if the review were to conclude that Kenya's government debt and financing needs, and hence its fiscal strength and liquidity position, have eroded to levels no longer consistent with B1 rated peers. In particular, the rating agency would downgrade the rating in the absence of an effective policy response to these challenges.

WHAT COULD LEAD TO CONFIRMATION OF THE RATING AT THE CURRENT LEVEL

Moody's would confirm the rating at B1 if the review were to conclude that the policy response offers the prospect for tempering the currently-anticipated upward trend in government debt and that liquidity risks are being effectively managed.

GDP per capita (PPP basis, US$): 3,496 (2016 Actual) (also known as Per Capita Income)

Real GDP growth (% change): 5.8% (2016 Actual) (also known as GDP Growth)

Inflation Rate (CPI, % change Dec/Dec): 6.3% (2016 Actual)

Gen. Gov. Financial Balance/GDP: -8.9% (2016-17 Actual Fiscal Year) (also known as Fiscal Balance)

Current Account Balance/GDP: -5.2% (2016 Actual) (also known as External Balance)

External debt/GDP: 26.5% (2016 Actual)

Level of economic development: Low level of economic resilience

Default history: At least one default event (on bonds and/or loans) has been recorded since 1983.

On 28 September 2017, a rating committee was called to discuss the rating of the Government of Kenya. The main points raised during the discussion were: The issuer's fiscal or financial strength, including its debt profile, has materially decreased.

The principal methodology used in these ratings was Sovereign Bond Ratings published in December 2016. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

The weighting of all rating factors is described in the methodology used in this credit rating action, if applicable.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Lucie Villa
Vice President - Senior 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
Yves Lemay
MD - Sovereign Risk
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