Moody’s further downgraded Kenya’s sovereign rating to “junk territory,” citing fiscal consolidation challenges to contain the debt burden.
The credit rating agency downgraded the country’s local- and foreign-currency long-term issuer and foreign-currency senior unsecured debt ratings to “Caa1” from “B3.”
In June, Kenyan President William Ruto cancelled a planned tax increase in response to mass protests. According to African media, at least 24 people were killed in the demonstrations.
The cancelled finance bill contained measures designed to help the government meet its goal of collecting $2.7 billion in additional taxes to reduce the budget deficit and government borrowing.
To compensate for the cancelled finance bill, the Ruto administration proposed spending cuts.
Moody’s stated that while the spending cuts should reduce the fiscal deficit, they would come at a more gradual pace than previously anticipated. As a result, Kenya’s debt affordability is expected to remain weak for an extended time.
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.
The agency reiterated its “negative” outlook on Kenya, arguing that a larger fiscal deficit would lead to higher borrowing requirements and subsequently increase the government’s liquidity risks.
