Moody’s downgraded Kenya’s sovereign rating further into junk territory on Monday, citing reduced ability to implement a fiscal consolidation strategy to manage its debt load.
The credit ratings agency lowered the country’s long-term issuer ratings for both local and foreign currency, as well as its ratings for foreign-currency senior unsecured debt, from “B3” to “Caa1”.
In June, President William Ruto withdrew proposed tax increases following widespread protests that resulted in fatalities, with at least 24 reported deaths.
The abandoned finance bill aimed to generate $2.7 billion in additional revenue to reduce the budget deficit and government borrowing. In response to scrapping the bill, Ruto’s administration has proposed spending cuts.
Moody’s noted that while these cuts could help narrow the fiscal deficit, the process is expected to be slower than previously anticipated, keeping Kenya’s debt affordability challenged for an extended period.
The agency expressed skepticism about the government’s ability to introduce significant revenue-raising measures amidst ongoing social tensions.
Maintaining a ‘negative’ outlook for Kenya, Moody’s highlighted concerns that larger fiscal deficits will increase borrowing needs and heighten liquidity risks for the government.
