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Moody’s, the credit ratings agency, downgraded Kenya’s local- and foreign-currency long-term issuer ratings and foreign-currency senior unsecured debt ratings to “Caa1” from “B3”. Moody’s warned the outlook was negative after a wave of protests led the government to abandon proposed tax hikes and the diminished capacity to implement a fiscal consolidation strategy to contain its debt burden.
Kenya’s local currency (LC) ceiling was lowered to B1 from Ba3, maintaining a three-notch difference with the sovereign rating, which reflects relatively weak institutions and policy predictability and moderate political risk set against a relatively small footprint of the government in the economy and limited external imbalances.
In June, Kenyan President Willian Ruto withdrew planned tax hikes in response to mass protests that turned deadly, killing at least 24 people. The scrapped finance bill contained measures intended to aid the government’s aim to raise USD 2.7 billion in additional taxes to reduce budget deficit and state borrowing. To compensate for the withdrawn finance bill, Ruto’s administration has proposed cuts in spending.
Moody’s said that while the spending cuts should narrow the fiscal deficit, it would be at a more gradual pace than previously assumed, and as a result, expect Kenya’s debt affordability to remain weaker for longer.
In the context of heightened social tensions, we do not expect the government to be able to introduce significant revenue-raising measures in the foreseeable future, stated the rating agency.
Moody’s affirmed its ‘negative’ outlook for Kenya, stating that the larger fiscal deficits will push up borrowing requirements and subsequently increase government liquidity risks.
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Kenya’s public debt already amounts to some 10 trillion shillings, around 70 percent of gross domestic product. Despite the unrest, the Kenyan shilling has remained largely stable, hovering at around 128 to the dollar after plunging to a record low of more than 160 in January. The Kenya Revenue Authority announced on Monday that it had collected 2.4 trillion shillings in the financial year ended
