Moody’s expects Kenya’s economic growth to increase marginally to 5%-6% in 2013-15 from 4.7% in 2012, thanks to higher investments, the global ratings agency said in its annual credit report on Kenya. It added that the country’s potential GDP growth is 8%-10%, but is constrained by a chronic infrastructure deficit that weighs on productivity and competitiveness. Moreover, Kenya’s economy is also dependent on weather shocks, particularly variability in rainfall, which affects agricultural output and electricity output and prices.

Moody’s noted that Kenya lags regional peers in its ability to attract foreign investment, but projected that the development of recent oil and gas discoveries could improve the investment outlook in advance of commercial production, which is expected to come online around 2020.

Moody’s said also that Kenya's B1 rating reflects its weak public-sector balance sheet, which is characterised by rising deficit and debt levels. The agency noted that the country’s history of political instability, high corruption levels and limited capacity to execute reforms exacerbate risks stemming from its volatile economic fundamentals. It added that despite improving economic growth prospects, a limited economic diversification, narrow export base and low per-capita income continue to constrain the rating.

Kenya’s government has announced plans to sell an about USD 1bn Eurobond on the international markets by September 2013 following the largely peaceful general and presidential elections in March. The proceeds will be used to fund infrastructure projects and to partly repay a USD 600mn syndicated loan from three foreign banks signed last year.