[August 01, 2011] Country's Growth Prospects Hinge on U.S. Debt Rating Tweet Aug 01, 2011 (Business Daily/All Africa Global Media via COMTEX) -- Kenya's economic growth prospects will come under renewed pressure if the US Congress votes to increase its debt ceiling, threatening earnings from the diaspora, tourism, and commodity exports. The International Monetary Fund (IMF) has warned that any loss of confidence in the ability of the US to service her debts will trigger another global recession. Rating agencies' downgrade of US' credit worthiness will see interest rates surge globally. "The cost of borrowing will rise from country to country with demand for the dollar reducing as foreign investors withdraw their funds to alternative markets," said Standard Investment Bank Kenya analyst Deris Migoi. Analysts said donor contributions to the government and NGOs would also be affected. US government funding to Kenya through USAid last year was Sh61 billion. Standard and Poors (S&P), a global credit rating agency, said consumers and businesses would likely stop spending on non essential items and the value of the dollar against other major currencies would slide by a tenth. "Remittances and textile exports will be affected, but not so much compared to developed countries since we don't export luxury commodities to the US which consumers will be keen to avoid," said World Bank lead economist for Kenya Wolfgang Fengler. More than half of diaspora remittances, Sh367 billion last year, came from the US. Foreign direct investments to Kenya would also be affected as the cost of funds increases. Foreign direct investments from US firms grew by 16 per cent to Sh19.5 billion in 2008, according to the latest figures from the Kenya National Bureau of Statistics. Kenyan exports goods valued at Sh22 billion to the US annually. "This could slow down recovery of the US economy, hence our exports to the US will be hit," said James Dry of Dry Associates, a fund management firm. He said changes in the valuation of the US dollar such as a devaluation would have a direct impact on the country's balance of payments and forex reserves held by the Central Bank. Capital flight Data shows that Kenya received 117,000 tourists from the US, only second to the United Kingdom, last year. Analysts said that such an incident would trigger capital flight from investment instruments in countries such as Kenya as investors seek safe havens to protect their wealth. "It will trigger flight to safety, developed markets which depend on developed countries as their export markets will be the biggest losers," said Gerishon Ikiara, an economics lecturer at the University of Nairobi. Foreign investors have been controlling the highest percentage of trading activities at the Nairobi Stock Exchange. [ Back To TMCnet.com's Homepage ]