Kenya's Credit Rating Downgraded by Moody's Due to Rising Liquidity Risk
15 May 2023
Kenya's Credit Rating Downgraded by Moody's
Moody's Investors Service downgraded the country's foreign currency issuer ratings from B2 to B3. This downgrade pushes Kenya's creditworthiness into the "high credit risk" category, with just one level above the "very high credit risk" classification.
Moody's, one of the world's leading credit rating agencies, cited the escalating liquidity risk faced by the Kenyan government as the primary reason for the downgrade. The agency expressed concerns about the deteriorating domestic funding conditions, particularly the significant decrease in net domestic issuance over the past two months, contributing to financing shortfalls.
The downgrade follows a series of challenges faced by the Kenyan government, including the recent under-subscription of bond issuances.
The auction for a 15-year bond in mid-April had to be canceled due to the lack of investor interest. This development has raised concerns about the government's ability to meet its financial obligations.
According to the latest data from the National Treasury, domestic borrowing receipts for April amounted to KES 406.6 billion, falling significantly short of the full financial year target of KES 886.5 billion, with only two months remaining in the current fiscal year. This underperformance in domestic borrowing further highlights the financial strain faced by the Kenyan government.
Moody's decision to downgrade Kenya's credit rating comes less than a month after the Treasury called for expressions of interest from global banks to underwrite the country's next Eurobond, which is planned to be issued in the 2023/24 financial year.
The downgrade may increase the cost of borrowing for Kenya in international markets and potentially reduce investor appetite for the upcoming Eurobond issuance.
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ECONOMY
World Bank Board to meet and discuss approval of $1 Billion Development Policy Operation for Kenya
The board of the World Bank Group is set to convene on May 26 to discuss and approve a $1.0 billion (equivalent to KES 136.5 billion at current forex rates) financial package for Kenya under its Development Policy Operation (DPO) framework. These funds, which come in the form of non-earmarked loans, credits, or grants, aim to support Kenya's economic and sectoral policies and institutions.
Once approved, the World Bank is expected to disburse the funds to the Kenyan exchequer within a month. The financing has already been incorporated into the budget for the financial year 2022/23, which concludes on June 30.
The proposed funding carries various conditions and reforms, and one of the key focuses is on strengthening domestic revenue mobilization, particularly within the emerging digital economy. This signifies the World Bank's recognition of the importance of leveraging Kenya's growing technological advancements to drive economic growth and stability.
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TAX
The Kenya Revenue Authority Cracks Down on Corporate Tax Invoice Compliance
In a bid to enhance tax compliance and streamline the collection of value-added tax (VAT), the Kenya Revenue Authority (KRA) announced that it will begin penalizing corporates that fail to provide electronic tax invoices for payments made to suppliers. The new enforcement measures will take effect from next month, imposing significant consequences on non-compliant businesses.
Starting in June, firms that do not furnish the KRA with electronic tax invoices will be unable to claim input tax and refunds related to VAT. As a result, their tax liabilities will increase, potentially impacting their financial bottom line. This move aims to encourage the adoption of electronic tax invoice management systems (e-TIMS) among businesses and ensure greater transparency in tax transactions.
E-TIMS is an innovative internet-enabled tax register introduced by the KRA to facilitate real-time sales data transmission for VAT-registered enterprises. It mandates that businesses subject to the 16 percent VAT levy utilize the system to generate electronic tax invoices, which are then transmitted to the KRA on a real-time or near real-time basis.Click here to read the full story
Government still owes Kenyan businesses 12 billion in tax refunds
The government still owes Kenyan businesses a staggering amount of KES 12 billion in tax refunds, creating a significant headache for the authorities. Despite ongoing reforms aimed at resolving this issue, the Kenya Revenue Authority (KRA) revealed that the stock of refunds stood at KES 31.2 billion as of April, underscoring the urgency to clear this backlog.
In response to queries about the state of tax refund arrears, the KRA stated,
"As of April 2023, we had outstanding stock at KES 31.2 billion. We have paid out Sh20.4 billion so far and have a pending balance of about KES 12 billion. Some of the stock of arrears is from 2022.”
Recognizing the gravity of the situation, the Treasury is taking steps to address the government's tax refunds dilemma. One proposed solution is to allow individuals who have experienced delays in receiving their refund claims to use these funds to offset emerging tax liabilities. This proposition is included in the Finance Bill 2023, which seeks to amend Section 47 of the Tax Procedures Act of 2015.
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COMPANIES
Britam Holdings in partnership with Swiss Re and Oxfam Kenya launched a flood insurance product
Britam Holdings has joined forces with Swiss Re and Oxfam Kenya to launch a groundbreaking flood insurance product aimed at providing protection to farmers residing along the banks of the Tana River.
The initiative seeks to mitigate the losses suffered by these farmers as a result of heavy rains, which have become increasingly frequent in Kenya due to the effects of climate change.
The Kenya Red Cross Society has alarming statistics, revealing that between the years 2000 and 2018, over 3.4 million individuals have been adversely affected by floods. Recognizing the urgency of the situation, Britam, Swiss Re, and Oxfam have combined their expertise and resources to develop an innovative solution to address this pressing issue.
Kudzai Bingepinge, the Head of P&C Solutions MEA (Middle East and Africa) at Swiss Re, expressed enthusiasm about the partnership and the launch of this pioneering product in Kenya. Bingepinge stated,
"We are thrilled to be launching this innovative new solution in Kenya in partnership with Britam."
Swiss Re, renowned for its expertise in reinsurance, will underwrite Britam's flood insurance solution, providing the necessary support to ensure its success.
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MERGERS AND ACQUISITIONS
DT Dobie and CFAO Motors Kenya merged their operations
In a move aimed at increasing efficiencies and market share, motor vehicle dealers DT Dobie and CFAO Motors Kenya, the seller of Toyota models, have merged their operations. This consolidation comes after a decade of independent operations despite their common ownership.
The merger was facilitated by the Japanese conglomerate Toyota Tsusho Corporation (TTC), which acquired trading firm CFAO Group in December 2012. As part of the acquisition, TTC gained control of CFAO's subsidiaries in Africa, including DT Dobie. Notably, TTC already owned Toyota Kenya, recently rebranded as CFAO Motors, prior to the buyout.
Under the new arrangement, the motor vehicle dealerships in Kenya will now operate as CFAO Motors, with the former Toyota Kenya serving as the corporate head office and continuing to focus on selling Toyota vehicles, including popular models such as the Prado, as well as Yamaha motorcycles.
The merged entity will have a market share of nearly 30%, according to data from the Kenya Motor Vehicle Industry Association (KMIA).
This will make it the second-largest dealer by unit sales after Isuzu East Africa which has a 44.7 percent market share.
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WHAT YOU MIGHT HAVE MISSED
Ethiopia has granted Safaricom a license to launch M-Pesa
Safaricom expects to roll out the mobile money services before the end of the year, which is set to lift the profile of the service since its launch in Kenya in 2007.
“As of this morning, Safaricom Ethiopia has officially been granted the licence to operate mobile money. We look forward to launching M-Pesa in the coming weeks,” chief executive officer Peter Ndegwa said Thursday morning during an investor briefing.
Safaricom announced a 22.2% drop in net profit for the full year ended March 2023 to KES 52.48 billion, the third consecutive drop in earnings on the back of its capital investments in Ethiopia.
The unit posted a net loss of KES 21.7 billion, but Safaricom expects it to break even in its fourth year of operation.
The Employment and Labour Relations court ordered outsourcing firm Samasource (Sama) to continue paying Facebook content moderators
The moderators, who have also sued Facebook owner- Meta Platforms Inc and Meta Platforms Ireland Limited - said their employer has refused to pay them their monthly salaries, a move that has left them destitute as most do not have any relatives or family in Kenya.
The employees are from various countries in Africa and were engaged as Facebook content moderators at the Content Moderation Centre in Nairobi, which serves the larger Eastern and Southern African Region.
Uber has launched flight bookings in the United Kingdom (UK)
Uber entered into a partnership with travel agency Hopper to provide international and domestic flight booking services solely in the UK as it plans to expand to other markets.
The move is "the latest and most ambitious step" in the company's strategy to expand its core ride-booking business, Uber’s UK General Manager Andrew Brem told the Financial Times (FT).
FT said Uber will charge commissions from each ticket sale and could add booking fees on top in the future. The San Francisco-based company already has train and coach booking services in the country with the latest moving the firm a step closer to having a travel booking platform.
The Judiciary owes KES 1 billion to various contractors
The Judiciary owes KES 1 billion to various contractors who won cases against it but have remained unpaid for the past six years. The bulk of the unpaid court awards is owed to construction company NK Brothers which is demanding Sh545.6 million after winning the case in May 2018.
On its part, Land Mark Holdings is owed Sh355.32 million, which was awarded by the courts in March 2019. Riley Security Services is yet to be paid Sh52.8 million that was awarded to it in 2017. The Judiciary also owes Jubilee Insurance Company Sh121.9 million following a judgment delivered on January 20, 2021.